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ProfSeventh International Conference on “Enterprise in Transition” ENTREPRENEURIAL CHARACTERISTICS OF CROATIAN
Phone: ++385 31 224 400; Fax: ++ 385 31 211 604 Jasna Horvat
Phone: ++385 31 224 400; Fax: ++ 385 31 211 604 Josipa Forjan
Phone: ++385 31 224 400; Fax: ++385 31 211 604 Key words: international business, statistical analysis,
innovativeness, proactiveness, risk taking propensity
Entreprenurial activity has for long been acknowledged as a significant contributing factor to
the economic vitality of a nation or a region (i.e. Schumpeter, 1934; Kent, 1982;). It is linked
with individuals, new ventures, risk-taking and innovation (Jennings and Lumpkin, 1989;
Lumpkin and Dess,1996). It is very often associated with growth and job creation, and thus
crucially important for emerging economies such are Central and Eastern European
transitional countries. According to Balabanis and Katiskea (2003), entrepreneurial posture is
determined by three major attributes: the organisations' propensity to take risks,
innovativeness and proactiveness.
Risk taking propensity refers to company's willingness to engage in business ventures in
which the outcome may be highly uncertain. It is a relatively stable characteristic, but can be
modified through experience. Although it is often viewed as an individual characteristic (of a
person, i.e. manager), the positive association between risk propensity and risky decision
making by individuals is expected to translate to organisations through top management teams
(Panzano and Billings, 2005).
Session Name (Please DO NOT CHANGE THIS TEXT) Innovation refers to the ability of a company to create new products or procedures or to modify the existing ones in order to meet the changing market requirements. Innovativeness is important for company growth and development for several reasons: innovative products present opportunities for companies in terms of growth and expansion into new areas and allow companies to gain competitive advantage. Innovative policies and innovations themselves are important for both established and new companies. They alow established companies to gain dominant competitive positions and afford new-comer companies an opportunitiy to gain an edge in the market (Erdil, 2004). Proactiveness refers to companys' capacity to compete in the market by introducing new products, services, technologies, etc. It relates to aggressive posturing relative to competitors, with emphasis on execution and follow-up of tasks in pursuit of the company's objectives (Knight, 2001). Different companies, due to their different characteristics such are size, age, branch, organizational structure, etc. possess different ability to adopt an entrepreneurial posture as well as to reap benefits of it. On the other hand, the major characteristics of the world economy today are shortened product development cycles, customer-driven markets and knowledge intensive products. There are only a few products and producers that do not have to face keen international competition, either on their local or international market. Competition is getting a more international dimension and is intensifying. Exporting has always been an important mode of doing business internationally and it is a «must» for small and medium sized companies and small countries in general, as it represents one of the most applicable opportunities for their growth. However, international markets by definition tend to be more complex and unpredictable and possibly more hostile for foreign companies. Therefore the adoption of entrepreneurial characteristics in doing bussiness internationally becomes crucial. The aim of this paper is to test the level of entrepreneurial behaviour and typical characteristics of Croatian exporters. Using the multuivariate and inferential statistics we have analysed a sample of 88 Croatian exporters and results of the research are presented in this paper.
2. CROATIAN EXPORTS AND EXPORTERS
Out of about 76,000 registered companies in Croatia there are only about 7,000 exporting
companies (less than 10%). Among them only 3,144 can be called active exporters that made
export value of over 1 million kuna (about 133,000 Euro), and only about 200 of them export
value of over 1 million Euros. Large groups and companies make over 95% of Croatian
exports. At the same time, the long-term export results in Croatia are rather unsatisfactory:
imports are constantly growing and exports are stagnating, thus creating a disturbing balance
of trade deficit.
The research (Izvoznik, 2004) has shown that most export managers see several reasons for
Seventh International Conference on “Enterprise in Transition” - non-competitive export pricing, - insufficient or bad promotion activities, and - export products’ quality. Table 1 shows the major indicators of Croatian economy concerning international business results in period 1998-2005 Table 1:The major indicators of international trade results in Croatia 1998-2005 (mil US$) 8,275.6 7,798.7 7,886.5 9,147.1 10,722.0 -3,758.4 -3,496.1 -3,454.9 -4,481.2 -5,818.5 -8,022.4 -8,560.7 -9,737.5 FOREIGN DEBT 10,738.9 10,192.7 11,282.2 11,870.2 15,679.6 24,759.3 31,002.2 30,219,9 Source: Croatian Chamber of Commerce 2006; reports The export/import coverage throughout the whole period was around 50%. In 2004 it was only 48.4 %. Within the analyzed period, only in year 2004 exports growth was more rapid than imports growth. The value of exports per capita in 2005 in Croatia was only about 1,100 US$, whereas in Slovenia, for example, it was 4,774 US$ and in Ireland 22,120 US$. Figure 1 shows the major trends in Croatian export and import in period 1998-2005. t,Im 10000
Figure 1: Import and export growth and export/import ratio (1998-2005) in mil. US$
We have conducted a research of Croatian exporters in period March – May 2004. The data
collection model was a postal survey. A questionnaire was sent to a sample of 300 exporters
which were randomly drawn from the Croatian Chamber of Commerce database as 10% of
active exporters. A weighing variable was computed (sample representativeness is ± 4%) in
Session Name (Please DO NOT CHANGE THIS TEXT) terms of company age, number of employees and type of business activity. The sample covers
the whole territory of Republic of Croatia. The key informant approach was used and the
recipients of the questionnaire were chosen to be managing directors of the companies. Four
weeks after initial mailing a remind letter and a new questionnaire was sent to non-
respondents. At the end, a total of 90 questionnaires were returned and 88 of them were
usable for our research (two companies were not exporting anymore). The effective
responsive rate reached 29.3%.
3.1. Sample description
According to the business activity, the sample of 88 Croatian exporters was divided into two
groups: one that consisted of so called traditional activities that are characterized by labor
intensity, and other that is mostly technology or capital intensive. 46 companies (52.9%) of
the sample belong to the first group and 41 (47.1%) to the second.
Number of employees was used as a measure of company size. According to this criterion,
20.5% of the sample has 100 and less employees. 50% of the sample employs 215 or less
employees. Almost half (45.5%) of the sample belongs to large companies with over 250
employees. The largest company in the sample has 3880 employees.
Company age, according to some research, seems to have an impact on level of
innovativeness (Hansen, 1992; Balabanis and Katiskea, 2003). Our sample has the following
age structure: 50% of the sample is 44 years old or younger, i.e. older. The oldest company is
300 years old. Only 12 exporting companies in the sample (13.6%) can be considered young
(10 years or younger).
The basic characteristics of the sample are shown in Table 2.
Table 2: Sample description
Type of activity
Traditional (labour intensive) 46 52.9
Non- traditional (technology or 41 47.1
capital intensive) activities
Number of employees
Up to 50
Seventh International Conference on “Enterprise in Transition” 3.2. Questionnaire
The questionnaire was constructed to analyze the structure of exporting companies in Croatia:
type of business activity, number of employees and company age on one hand, and on the
other to test their entrepreneurial orientation in doing business internationally. This part was
tested by evaluation on 5-point Likert scale of the well-known construct for measuring
international entrepreneurial orientation used by number of authors (Covin and Slevin, 1989;
Khandwalla, 1987; Balabanis and Katiskea, 2003).
The results were then checked against the company characteristics and secondly, against
- environmental hostility (reliability of financial and material resources, possibilities for business development, competition, industry settings and general climate for business), - environmental diversity (key foreign markets and their economic and cultural - environmental dynamism (importance and influence of political, economic and cultural changes in the key export markets). These variables, according to Balabanis and Katiskea (2003), are correlated with
3.3. Analysis and results
Innovativeness was tested on five variables, as can be seen in Table 3.
Table 3: Innovativeness
and environment Research application in business formalization Ability to change products and processes in accordance with market requirements Total 3.42 The average innovativeness value was marked as 3.42 on 5 point Likert scale. The highest average mark was given to “employees knowledge and expertise” variable and the lowest to “Research application in business” variable. Proactiveness was tested on three variables, as can be seen in Table 4. Session Name (Please DO NOT CHANGE THIS TEXT) “we constantly search for new possibilities for existing business activities” “we are often the first ones to introduce new products/technologies on the market” “we constantly actively search for new partners to improve business activities” Total 3.67 Proactiveness was given an average mark of 3.67, the highest of all three characteristics. The highest mark, was given to the “we actively search for new partners to improve business activities” variable, and the lowest to “we are often first ones to introduce new products/technologies on the market” variable. Risk taking propensity was tested on four variables as it is shown in Table 5. Table 5: Risk taking propensity Mean “our business activities can be considered risky” “we introduce new projects slowly and step by step” “we are very conservative in major business decisions” “we hold onto existing and well known projects and 3.21 3.0 The average mark given to risk taking propensity was 3.12., the lowest of all three characteristics. The highest mark to the risk taking propensity was given to the “we introduce new projects slowly and step by step” variable, which is the negative measure of risk taking propensity, and adequately, the lowest mark was given to the “our business can be considered risky” variable. The means of each of these complex three variables (innovativeness, proactiveness and risk taking propensity) were than standardized (z-score) in order to ensure their comparability. They were marked as criteria variables for hierarchical cluster analysis. The cluster analysis has divided the sample in two clusters: the first one (“entrepreneurial”) with 50 companies, and the average score of entrepreneurial behavior of 3.76 and the second one (“non-entrepreneurial”) with 26 companies with the average score of entrepreneurial behavior of only 2.9. Twelve companies in the sample did not fit into any if the clusters, because of the missing data so we can assume that unanswered options, i.e. variables are non-existing, so these 12 companies might also fit into non-entrepreneurial cluster. Table 6 shows the results of t-test analysis of cluster differentiation according to criteria variables, i.e. average of variables that were used for innovativeness, proactiveness and risk taking propensity measurement. Seventh International Conference on “Enterprise in Transition” Table 6:. t-test analysis of cluster differentiation according to criteria variables ** Mean Difference was significant at the 0.01 level (P<0.01) Further analysis has shown that the two clusters do not differ significantly according to their own characteristics: type of business (t=0.153; p=0.695), number of employees (t= 0.001; p=0.971) or company age (t=1.850; p=0.178). According to the t-test results, they do significantly differ in evaluation of all elements of environment hostility (reliability of material resources (t=2.471, p=0.018), reliability of financial resources (t=3.219, p=0.002) and possibilities for business development (t=4.249, p=0.000) in their key export markets. They also significantly differ in their perception of economic aspects of environment diversity (i.e. differences in economic environment) in their key export markets (t= 2.115, p=0.036). However, they do not significantly differ in evaluation of cultural aspects of environment diversity (i.e. cultural differences) and in evaluation of environment dynamism (political, economic and social changes and their influence on their own business) in their key export markets. Table 7 shows the statistically significant differences between the two clusters. Cluster 1 is the “entrepreneurial” and cluster 2 the “non-entrepreneurial” one. Table 7: Statistically significant differences between the two clusters ** Mean Difference was significant at the 0.01 level (P<0.01) * Mean Difference was significant at the 0.05 level (P<0.05) Session Name (Please DO NOT CHANGE THIS TEXT) 4. DISCUSSION
Altogether, if innovativeness, proactiveness and risk taking propensity are used as a measure
of entrepreneurial behavior, our research shows that Croatian exporters have relatively low
level of entrepreneurial behavior. Although the majority of the sample exporters belong to the
“entrepreneurial” cluster, the average mark on 5 point Likert scale for all the three
characteristics is only 3.40 (entrepreneurial cluster 3.69, and the non-entrepreneurial only
2.70). In the whole model, the highest mark was given to proactiveness, but mostly thanks to
the variable of searching for partners in international market - mostly to share the risk, while
the risk taking propensity variable consequently got the lowest mark, only 3.12.
Innovativeness as a characteristic of entrepreneurial behavior got the middle mark (3.42) but
there is a noticeable gap between the highest and lowest marked variable: employees have
rather good knowledge and expertise, but the research application in business operations is
extremely low. These findings indicate an underestimation and suboptimal use of human
resources and their potential contribution to international business success and also might be
one of the reasons for low risk taking propensity of Croatian exporters.
Contrary to some other research for different countries (Balabanis and Katiskea, 2003; Guan
and Ma, 2003; Mtigwe, 2005), this research shows that company internal characteristics such
are size, age or type of business activity, do not significantly influence the level of
entrepreneurial orientation and behavior in international markets in case of Croatian
exporters, while some of the external variables seem to have a much more significant
influence. External variables that represent elements of environment hostility of the foreign
market and environment economic diversity differ significantly. Elements defining
environment cultural diversity and dynamism, again, do not significantly differ in case of
entrepreneurial vs. non-entrepreneurial Croatian exporters.
These phenomena might be explained by the environmental turbulence of the transitional
economies of the ex-Yugoslavian market during past two decades: the 1991-1995 war has
split the single country into six independent states, so previous parts of the domestic market
have become international. These ex-Yugoslavian markets create the most important export
markets (export concentration of over 50%) for 27 companies, i.e.1/3 of our sample. The
same stands for the data of all Croatian exports: ex-Yugoslavia countries make about 28% of
Croatian export markets. These countries share the same history as well and socio-cultural
environment. Therefore, it is understandable that cultural diversity and environment
dynamism are not seen as important factors for both clusters. However, economic diversity
which is obvious even in the ex-Yugoslavia countries (for example Slovenia in EU and
Bosnia and Herzegovina as politically and economically disunited market) seems to play a
significant role, especially in the entrepreneurial cluster since it requires research, strategy
adaptation and other elements of entrepreneurial posture.
5. LIMITATIONS AND FURTHER RESEARCH
This research has some limitations. One is relatively small sample, which might be biased to a
certain extent, i.e. that only those managers that have recognized the researched topics have
answered the questionnaire. The other bias is the fact that many managing directors of
companies are also the owners, so their objectivity might be questioned.
Seventh International Conference on “Enterprise in Transition” The next step of this research would be to check the relationship of entrepreneurial
characteristics of exporters with their export performance and is if any or all of these
characteristics influence the Croatian companies’ export performance.
Furthermore, it would be interesting to compare the results of exporting with the new research
of non-exporting companies and see if they differ significantly, i.e. if exporters have
recognized the entrepreneurial orientation as a key concept to solving specific challenges of
doing business internationally.
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