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Factors affecting entrepreneurship in transition economies: An evaluation of the development cycles of Polish MBOs - Page 6

Discussion

The MBO mechanism has been widely adopted in the privatisation programmes of Central and Eastern European countries as a means to improving business performance (Filatotchev et al 1994; Wright et al 1994). The premise held has been that by providing managers with the opportunity to hold a financial stake in their business, they will have an incentive to improve business efficiency and exploit new market opportunities. In the Polish cases reviewed in this paper there is evidence in particular to confirm that there have been significant efficiency gains but that market innovation has not occurred.

The transition economies have undergone more fundamental and unpredictable change processes that was the recent situation in the UK . On account of these contingent circumstances, the business recovery and growth strategies which have been effective in MBOs in the UK , in large measure based upon the availability of investment capital and more readily forecast markets, have not been readily applicable.

Studies such as Wright et al (1994) and Filatotchev et al (1994) have considered the use of MBOs in the transformation process from both an ethical and return on investment perspective. Viewed as an instrument of transition, MBOs are a factor of industrial restructuring but management may be buying from a state system that is not set up to realistically value the MBO, therefore opportunities exist for asset profits to be made by managers at the expense of the state. In the cases examined in this paper there is no evidence that the shareholders in the MBOs have gained an excessive benefit. Indeed the Polish Government appears to have achieved a solution in the public interest in its handling of the "small privatisation" process.

The privatisation process in Poland has been the subject of extensive debate over the past eight years. The evidence of the three Polish MBO cases reported upon in this paper suggests that for small firms, at least, privatisation has been worthwhile. The success of entrepreneurship within the MBO in the transition economy cannot be judged simply by the evidence of profitability as this may be the result of short-term strategies (Filatotchev et al 1994). Moreover Polish managers themselves are more likely than their UK counterparts to be inexperienced in buying companies let alone in setting strategic and business plans for the buyout. How such organisational learning can be measured is no less relevant. The issue of appropriate indictors for predicting the performance of MBOs is important given the need for the monitoring of business effectiveness to improve the direction of industrial investment and control of commercial debt in Central and Eastern Europe .

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