International Research in the Business Disciplines

Entrepreneurial activity is a critical issue in the transition of economies attempting to reduce, or abolish state-owned monopoly enterprises. In many Central and Eastern European countries, privatization, restructuring, and failure of state-owned enterprises as consequences of the reforms typically led to a reduction of the size of the workplace. For example, in Poland, about 3.5 million employees lost their jobs in the period 1991–1996 (PEAD, 2003). After the collapse of communism in Europe, post-communist countries have undertaken reforms to liberalize their economies. These reforms stimulated the development in the private sector of small and medium-sized enterprises. New ventures provide a counterbalance to the loss of jobs at state-owned companies. In the period 1991–1996, new enterprises in the private sector in Poland created more than 1.8 million jobs. By the end of 2002, they provided work for 68% of the total employed persons (PEAD, 2003). Further, new ventures can play a critical role in stimulating economic growth. As a result of market reforms, the contribution of the private sector to Gross Domestic Product, e.g., in Hungary, went from 7% in 1988 to 85% in 1999 (World Bank, 2000). However, many new ventures do not survive the first year of operation. For example, in Poland, about 40–45% enterprises established in the period 1995–2000 failed after the first year of their existence (PEAD, 2003).