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New Growth Potentials for the SMEs: Stronger Involvement in the KIBS Economy)
(The Case of the Hungarian vs.Slovakian business service firms)
Makó, Csaba
Institute of Sociology Hungarian Academy of Sciences
Group of Sociology of Organization and Work
„Virtual campus for SMEs in a multicultural milieu” Final Erasmus Project Conference - BBS, Budapest, 22nd March 2010.
Agenda
1.1. Setting the SceneSetting the Scene- Six „Grand Challenges” facing Europe and the 2020 Agenda- Six „Grand Challenges” facing Europe and the 2020 Agenda- Asymetric (Unbalanced) Character of the Economic Development - Asymetric (Unbalanced) Character of the Economic Development in in
CCE (Hungary) CCE (Hungary)
2.2. Looking for the New Trajectories of the Economic Development: Service Looking for the New Trajectories of the Economic Development: Service Economy and the Critical Mass of Innovative FirmsEconomy and the Critical Mass of Innovative Firms
- Historical shift in economic structure: from manufacturing to the - Historical shift in economic structure: from manufacturing to the
service economy, and increasing role of organizational-social service economy, and increasing role of organizational-social innovations)innovations)
3.3. Source of Sustainable Competitivity of SMEsSource of Sustainable Competitivity of SMEs.. Growing Role of Growing Role of Organizational Innovation/Learning in the KIBS sector.Organizational Innovation/Learning in the KIBS sector. - Lessons from the comparison of the Hungarian vs. Slovakian KIBS - Lessons from the comparison of the Hungarian vs. Slovakian KIBS sector. (Comparing the diffusion of organizational innovation and the sector. (Comparing the diffusion of organizational innovation and the company knowledge development practice.)company knowledge development practice.)
4. Lessons and Discussion
1. Six „Grand Challenges” facing Europe1. Six „Grand Challenges” facing Europe (1)(1)
• 1. Economic growth – restarting economic growth and ensuring long-term sustainability and competitiveness for the future. (In 2009, GDP fell by roughly by 4 % for both EU and euro zone. All member states have been effected, albeit unevenly. The 2009 contraction ranges from roughly 2 % in France to 4.5 – 5.0 % in Germany, Italy and the UK.)
• 2. Fighting unemployment – especially young unemployment and generational worklesness. (The current unemployment rate accross Europe is 9.8 %. Between 2008 and 2009, the highest increase were registered in Latvia (9.1 % to 20.9 %) and Lithuania (4.8 % to 13.8 %). The highest unemployment rate are in Latvia (20.9 %) and Spain (19.3 %). In October, the youth unemployment rate (under -25s was 20.6 % in the euro area and 20.7 % in the EU-27). Netherlands has the lowest rate of youth unemployment (7.2 %) and Spain (42.9 %) and Latvia (33.6 %) have the highest.
• 3. Climate change – the Stern Review estimated that climate change could cost between 5 % and 15 % of global per-capita consumption.Average annual economic demages from 2000 to 2020 would be 18 trillion Euro.Major changes requried in the following fields: sources of energy, new infrastructures, working patterns, methods of production and distribution, new forms of interaction, behaviour and beliefs.
• 4. Ageing population – by 2020, 25 % of the population will be over 60. (The 80+ population is expected to double before 2050. This will mean a ratio of 2:1 workers to retirees. This will lead to an increase of costs linked to pension, social security, health and long-term care by 4 – 8 % of GDP by 2025.)
1. Six „Grand Challenges” facing Europe1. Six „Grand Challenges” facing Europe ((22))
5. Social exclusion – due to ageing, poverty and/or cultural diversity. New solutions need to provide better access to services (health, care, housing and education) and opportunities for learnaing and employment.
6. Public sector innovation – growing social needs, togetehr with budgetary constraints, call for radically new and innovative public service methods.
Challenges at the same time represent „opportunities” too (e.g. IT have created exciting possibilities for improving our ability to meet social needs, such as „e-health care”, „virtual school in education”, etc.)
Several characteristics of the New Area of Innovation which differentiate
future innovation from the innovation of industrial area. Four drivers which will change the way companies innovate:
(1) Co-creating values with customers and tapping knowledge about users; (2) Global knowledge sourcing and collaborative networks; (3) Global challenges as a driver of innovation; (4) Public sector challenges as a driver of innovation.
1. Asymmetric Character of the Economic Modernization in Hungary (3)1. Asymmetric Character of the Economic Modernization in Hungary (3)
Stylized facts of the industrial restructuring in the 1990s: - Great majority of the production facilities created in the country by the influx of FDI are
representing „low-quality economic activities” on „The Quality Index of Economic Activities”. Key driver of FDI: cost instead of knowledge efficiency. (Washington consensus ideology and an outdated „techno-economic paradigm”) biased innovation policy orientation. (Kattel-Reinert-Suurna (2009).
- Outcome: low innovation activity and unbalanced presence of „innovative-learning” work organization in Hungary. (International Comparison: European Working Conditions Survey- 2005). Source: www.eurofound.europa.eu, Valeyre et. al. (2009) Vezetéstudomány, (Management Science) October and November Issues, pp.2-15, and pp. 36-51.)
Ownership of the firmProduct/process innovation
1991-2002Product/process innovation
2004-2005
100% Hungarian-owned 13,4% 17,3%
100% Foreign-owned 17,6% 30,1%
Mixed ownership 31,6% 30,5%
1. Share of Models of Work Organization in EU-27: over or near to the EU 1. Share of Models of Work Organization in EU-27: over or near to the EU average: average: EU-15 vs. NMS+2 (EWCS-2005) (4) (EWCS-2005) (4) (Közgazdasági Szemle, 2008)(Közgazdasági Szemle, 2008)
Models of work organization
NMS+2 EU-15
Discretionary learning organization (innovative)
Hungary, Estonia, Cyprus
Sweden, Denmark, the Netherland,
Finland
Lean organization (Neo-fordist work organization)
Slovakia, Czech Republic, Romania
U.K., Ireland, Spain
Tayori/fordist work organization (least innovative)
Bulgaria, Malta, Slovakia, Romania,
Hungary
Greece, Portugal. Italy
Traditional or non-coded work organization
Lithuania, Poland, Latvia
Greece, Portugal, Italy.
1.The Danish Example: Influence of company networking/ ownership on the organizational changes. A Danish example.(Nielsen, 2006) (5)(Nielsen, 2006) (5)
company group membership and ownership.
Organizational changes:
In 1993-95 and 1998-2000.
Organizational changes:
In 1993-1995 or 1998-2000
No organizational
changes
Firms’ sample
Danish company group:
39,6 % 33,7 % 26,6 % 169
Foreign company group:
63,2 % 23,6 % 13,2 % 106
Single firm 21,5 % 32,0 % 46,5 % 228
Total: 36,4 % 30,8 % 32,8 % 503
2. 2. Creating New Path of Economic Development in Hungary: The Creating New Path of Economic Development in Hungary: The Growing Importance of the KIBS Sector.(6)Growing Importance of the KIBS Sector.(6)
Historical shift in the economic structure• Global trend: Increasing share of the service sector
(especially the fast growing KIBS at the expense of agriculture and manufacturing)
• In the current financial crisis and economic slow-down particular attention is paid to the economic activities having strong employment generating capacity. (EU -2020 Strategy on smart/green economy.9
• Hungary: between 1995-2006, the service sector generated 90 % of the new jobs and within the (very heterogenous service) sector, every second job (57 %) was created by the KIBS firms, where the great majority of firms belongs into the SME segment of the economy.
2. 2. Demand Side PerspectiveDemand Side Perspective: The Share of the „IT” and „BPO” services. : The Share of the „IT” and „BPO” services.
(Sako, 2009:7) and www.neoit.com) (7)(Sako, 2009:7) and www.neoit.com) (7)
Country IT- service BPOIreland $ 2.2 bn -
Czech Republic $ 60 M $ 40 M
Poland $ 110 M $ 70 M
China $ 700 M $ 300 M
India $ 12.2 Bn $ 5.2 Bn
Romania $ 30 M $ 25 M
Hungary $ 50 M $ 25 M
Russia $ 550 $ 25 M
2. Supply side perspective: Average Salaries in Selected Offshore 2. Supply side perspective: Average Salaries in Selected Offshore
Destination Countries. (Sako, 2009:5 and www.neoit.com) ) (8Destination Countries. (Sako, 2009:5 and www.neoit.com) ) (8) )
Countries IT service BPO
Slovakia $ 17 395 $ 13 481
Romania $ 15 743 $ 12 692
Mexico $ 22 484 $ 17 899
Poland $ 29 393 $ 24 874
India $ 9 896 $ 7 779
Russia $ 21 018 $ 16 313
Vietnam $ 6 131 $ 5 188
Singapore $ 41 512 $ 34 295
China $ 10 095 $ 7 634
Canada $ 43 841 $ 34 462
Czech Republic $ 22 174 $ 17 438
Hungary $ 25 174 $ 21 553
2. Need for Critical Mass of the „Innovative/Learning” SMEs. Some Need for Critical Mass of the „Innovative/Learning” SMEs. Some features of innovation in the KIBS firms. features of innovation in the KIBS firms. (9)
• 1. Importance of the highly skilled employees in creating new services.
• 2. Need to develop and maintain „knowledge management” (KM) systems to support new and innovative solutions.
• 3. Central role of customers both in defining problems and develop efficient solutions in supplying services.
• 4. Strong involement in the company network and developing strategic (or high value added) cooperation with the external knowledge sources.
• 5. Increased role of the new managerial and organizational practices (organizational innovations). (Salter-Tether, 2006:17):
3. An Example: Comparing the Hungarian vs. Slovak KIBS Sector. Structural Features of the Firms Surveyed in 2008/2009 (10)
Characteristics of the Firms Hungary Slovakia
1. Age of the firms Dominance of the de novo firms (est. after 1990’s)
2. Type of dominant ownership National/Domestic Foreign
3. Firms’size Dominance of the SMEs
4. Market structure National/Domestic market
International market
5. Share of the high-value added services
High
6. Share of the „Customer tailored solution”
High
7. Company group membership („networking”)
Dominance of the „single” (isolated) firms
Dominance of the in the international
networking
13
3. Distribution of structrual (radical) organisational innovations (11)
10,7%
13,4%
34,8%
13,4%
36,1%
69,1%
Flat organisation
Interdisciplinaryworkgroups
Project-basedwork
Hungary
Slovakia
14
3. Distribution of procedural (incremental)organisational innovations (12)
9,7%
21,9%
49,7%
23,7%
37,3%
41,7%
28,9%
33,0%
41,2%
14,4%
21,6%
89,6%
Job rotation
Quality controlsystem
Collectingproposals
Quality circles
Benchmarking
Teamwork
Hungary
Slovakia
3. Company Practice of Knowledge Development: „learning by acquisition” and „learning by participation” (13)
Forms of knowledge development Hungary Slovakia
I. Formal training courses
- Educational/training institutions courses 45.5 % < 60.4 %
- Company required training in training/educational institutions
64.3 % < 68.6 %
II. Competence development
- Consultation with colleagues and managers
80.3 % > 75.5 %
- On-the-Job training (OJT) 74.1 % 70.3 %
- Participation in professional fairs/exposition
67.5 % > 44.3 %
- Supporting cooperation with various units within organization
62.6 % 63.3 %
III. Development of social skills (soft-skills)
- Job rotation 31.1 % < 40.1 %
- Team work 57.1 % < 74.0 %
Some Lessons (14)
1. The fast emerging „service economy” in Hungary is opening a new growth potential for the Hungarian SMEs having „dynamic” capablity of innovation.
2. The sustainable competitiveness of the SMEs in the KIBS sector is strongly related to the collective (networking/clustering) learning capacity of the firms. The learning capacity anables the firms to produce higher value added (more knowledge content) products and services in the Value Chain in general and in the Global Value Chain (GVC) in particular.
3. Role of organizational and workplace innovations are increasing in the knowledge development and transfer. Technological innovation alone is not sufficient source of the sustainable competitivness of the SMEs. (e.g. Innovation Policy Workshop on „Social Innovation – Mobilizing Resources and People” – Bureau of Europe Policy Advisors, Brussels, 25th – 26th March, 2010.)
Some Lessons (15)
4. In renewing the National Innovation System in Hungary, there is a need to construct a „map” of innovative organization of the firms (by sectors, regions) to identify the innovative/learning segment of the SMEs.
5. Urgent need for Strategic” or „high-value added” partnership between business’, educational-research communities and the government („Triple-Helix model”) to design and implement the new trajectory of the economic modernization in Hungary.
