Internal Barriers in the Transition of Enterprises from Central Plan to Market

Abstract

While a number of transition countries have been able to make significant progress with macroeconomic stabilization, little is being done to understand and to address the horrendous difficulties and barriers that attend the process of transition at the level of the enterprise. Not knowing what to change and what to leave in place -either because of its intrinsic value or because of its impenetrable and unyielding nature- exacerbates the complexity of the challenge. The purpose of this paper is to present the insights revealed by our study on the barriers obstructing the transition of enterprises from central plan to market. Stakeholders' fears and institutional uncertainty seem to be the major impediments to the transition of enterprises from central plan to market. It is the fears of "being independent and self responsible, not having the protecting 'umbrella' of the state", of ignorance of markets, of "too many fast changes", of "losing one's own job", of "increased unemployment" and most importantly the fear of "losing power and status". These fears are all derived from a deep suspicion of the consequences of any change. Thus workers fear the loss of job and of the enterprise umbrella, managers fear the loss of power and status and boards fear financial losses and loss of ownership. The insights gained apply to most transition countries. Differences from country to country are a matter of degree. The degree of effectiveness and stability of the market economy to which the system is transforming will greatly depend on the degree of transmutation of local, social value systems to the new values and practices, which market oriented systems will be able to contain and integrate. Efforts to introduce management techniques suited to a market economy will almost certainly fail, unless the techniques chosen from the arsenal of contemporary market oriented management methods, complement and build upon local traditional managerial values. Successful transition might hinge more upon overcoming internal barriers of enterprises, than upon any other single factor of this complex and arduous process. Local as well as western managers and investors should spend time and efforts to understand the concealed logic of the barriers encountered during the implementation of each change. They should address the fears of individual stakeholders (employees, potential partners, clients, suppliers and public officials) with whom they are dealing. They should be mindful of how deeply certain attitudes may be ingrained and should not overlook the value of experience, existing skills and the prevailing managerial behavior that can be usefully built upon; they should expect to work hard and long at change before it really occurs.