ENTREPRENEURIAL ORIENTATION OF KNOWLEDGE-BASED ENTERPRISES IN CENTRAL AND EAST EUROPE 1 Dynamics of Knowledge-Intensive Entrepreneurship: Business strategy and public policy, Edited by Franco Malerba, Yannis Caloghirou Maureen McKelvey, Slavo Radosevic (eds

Abstract

Our main research question is whether firms in emerging markets like CEE have all the attributes of developed entrepreneurial orientation (EO) or whether the specific external constraints and opportunities affect their EO. The picture that emerges from our analysis is sharply different from the dominant ‘individual – opportunity nexus’ as depicted in GEM-style of research on entrepreneurship. Within this perspective, and in a very simplified interpretation, the individual entrepreneur is conceptualized as a person that has grasped market opportunity and is constrained in its realization by a variety of institutional obstacles. In contrast, our data show a combination of individual start-ups as well as corporate spin-outs whose establishment and growth are closely interdependent with a variety of networks or network related factors. Similar to Klepper and Sleeper (2005) and Klepper (2009) CEE firms are spinoffs who have inherited specific knowledge from parent firms. They are either organizational spinoffs or new start-ups but whose founders brought accumulated work experience and network capital built during their previous career. This autonomous or corporate driven entrepreneurship is geared towards exploiting existing knowledge based on previous experience and recognising new market opportunities. New knowledge intensive enterprises are repositioning themselves in terms of markets or products, but not in terms of technology. In that respect, CEE entrepreneurship is of a cumulative and evolutionary rather than disruptive nature.

Full text

ENTREPRENEURIAL ORIENTATION OF KNOWLEDGE-BASED ENTERPRISES IN CENTRAL
AND EAST EUROPE1
Slavo Radosevic2 and Esin Yoruk3
This is an Accepted Manuscript of a book chapter published by Routledge in
Dynamics of Knowledge-Intensive Entrepreneurship: Business strategy and public policy,
Edited by Franco Malerba, Yannis Caloghirou, Maureen McKelvey and Slavo Radosevic
on 2016, available online: https://www.routledge.com/Dynamics-of-Knowledge-Intensive-Entrepreneurship-
Business-Strategy-and/Malerba-Caloghirou-McKelvey-Radosevic/p/book/9781138025288
1 We are deeply grateful to Maureen McKelvey for insightful and very useful comments on the previous version of this chapter.
2 University College London
3 University of Coventry

2
1 INTRODUCTION
There is a widespread recognition that entrepreneurship is not simply an individual matter but also refers to
characteristics of entire organizations. In that context, the key features of organisations are their entrepreneurial
orientation. Since the pioneering paper by Miller (1983), a sizable literature has grown up that investigates the
entrepreneurial activity of the firm and employs measures of the degree to which a firm can be classified as
entrepreneurial (Covin and Slevin, 1989; Lumpkin and Dess, 1996; Zahra, 1996; Shane and Venkataraman, 2000;
Shane, 2003; Wiklund and Shepherd, 2003, Salaran & Maritz, 2009). Entrepreneurial orientation (EO) is seen as
consisting of a number of different dimensions. Miller and Friesen (1982, 1983), Miller (1983) and Covin and Slevin
(1989) have defined entrepreneurially oriented organisations as those that are innovative, proactive (pioneering)
and risk taking. More precisely, according to Miller (1983:771) “an entrepreneurial firm is one that engages in
product-market innovation, undertakes somewhat risky ventures, and is first to come up with ‘proactive’
innovations”. For Covin and Slevin (1989:77) “entrepreneurial firms are those in which the top managers have
entrepreneurial top management styles, as evidenced by the firms' strategic decisions and operating management
philosophy”.
This chapter explores the factors influencing entrepreneurial orientations of firms but it adds an important new
dimension – the role of networks in entrepreneurial orientation (EO). This may seem quite logical in the context of
volume that adopts systemic perspective on entrepreneurship. Indeed, external networks may influence
entrepreneurial orientation. They may differ across different sectors depending on their networking, learning, and
competitive strategies (March 1991, Shane and Venkataraman 2000, Lumpkin and Dess 2001, Shane 2003),
especially as these relate to technological, market and institutional opportunities (Radosevic, 2007; Radosevic and
Yoruk, 2013). Equally, EO are shaped by external factors like knowledge infrastructure, FDI linkages and business
environment.
The research is based on in-depth survey of 60 knowledge-intensive entrepreneurial (KIE) firms in four Central and
East European countries4 (CEEC). The issue of EO to the best of our knowledge has not been explored in the
context of this region. CEE is largely middle-income region, which has undergone tremendous institutional
transformation as well as integration into the world and EU economy with widely differing outcomes (World Bank,
2005; EBRD, 2013, IMF, 2013; Pisani-Ferry et al, 2010). The issue of entrepreneurship and within it primarily the
role of individuals has been relatively widely explored (for example, see Smallbone and Welter, 2001; Estrin,
Meyer and Bytchkova, 2005; Estrin and Mickiewicz, 2010). However, the KIE in CEE has not been to the best of our
knowledge explored (for exception see Radosevic, Savic, and Woodward, 2010).
The last 25 years in this region represent a historically unique period for exploring is there anything unique or
specific about EO of CEE firms. In view of the large-scale systemic change, which is usually labelled as ‘transition’
(EBRD, 2013), it is quite interesting to explore whether external networks have facilitated or hindered EO of firms.
KIE is embedded in systems composed of heterogeneous actors and networks of various types, and is shaped by
institutions (regulatory systems). In that respect, our inquiry takes a broader perspective and goes beyond a focus
on innovativeness, proactiveness, risk taking, autonomy and aggressiveness which characterise current
approaches. We also take into account the role of networks as an important new element of EO. We explore this
issue in the context of the region where external networks of firms have undergone deep transformation and thus
the role of networks is quite pertinent issue. More specifically, we explore EO of KIEs, which are usually perceived
as the key promoters of technology upgrading and structural change (Coad and Reid, 2012). In the context of the
CEE, networking strategy has been described as one of firms’ major strategies (Peng, 2000) both as a reflection of
opportunities or as a survival strategy i.e. a response to fundamental uncertainties of the institutional context
(Stark, 1996). In Radosevic, Yoruk and Woodward (2011) we showed that EO is inherently different in different
sub-populations of firms depending on their sources of knowledge.
4 Croatia, Czech Republic, Hungary and Poland.

3
In the next section we present the extended theoretical background on entrepreneurial orientation (EO). Section
three describes the sample of firms studied as well as the data and methodology, while section four presents the
results. Section five concludes.
2 THE CONCEPTS
2.1 Firm Level Entrepreneurial Strategies Based on Dimensions of Entrepreneurial Orientation
In this chapter we follow Miller (1983) who was the first that perceived entrepreneurial activity in the firm as the
activity that arises from the effective complementary and simultaneous entrepreneurial innovativeness,
proactiveness and risk-taking. Following Miller (1983), Covin and Slevin, (1989, 1991) and Lumpkin and Dess,
(1996, 2001) developed the notion of entrepreneurial orientation defining it as strategy-making processes and
styles of firms that engage in entrepreneurial activities. The concept was well-received in the entrepreneurship
literature. Further studies comprise Zahra (1993) and Zahra and Covin (1995: 44) who used the concept of
corporate entrepreneurship and suggested that ‘it provides a potential means for revitalizing established
companies through risk taking, innovation, and proactive competitive behaviours’. Ireland, Covin, and Kuratko
(2009: 21) define corporate entrepreneurship strategy as “a vision-directed, organization-wide reliance on
entrepreneurial behaviour that purposefully and continuously rejuvenates the organization and shapes the scope
of its operations through the recognition and exploitation of entrepreneurial opportunity”. Morris, Kuratko, and
Covin (2008) contend that a firm is employing an entrepreneurial strategy when the actions taken in a large firm to
form competitive advantages and to exploit them through a strategy are grounded in entrepreneurial actions.
Therefore, dimensions of EO, to the extent that they are undertaken in a firm, determine its entrepreneurial
strategy. Further, when establishing direction and priorities for the product, service, and process innovation
efforts of the firm, the company is formulating its entrepreneurial strategy. In this chapter, we primarily refer to
EO though we recognise that developed dimensions of EO may implicitly or explicitly lead to entrepreneurial
strategy.
Lumpkin and Dess (2001) added two other dimensions to the original dimensions of EO - innovativeness,
proactiveness and risk taking proposed by Miller (1983): autonomy and competitive aggressiveness. For Covin and
Slevin (1989) and Lumpkin and Dess (2001: 431), these five dimensions capture:
 innovativeness refers to willingness to support creativity and experimentation in introducing new
products/services, and novelty, technological leadership and R&D in developing new products and
processes;
 proactiveness is an opportunity-seeking, forward-looking perspective involving introducing new products
or services ahead of the competition and acting in anticipation of future demand to create change and
shape the environment and it captures the tendency of a firm to lead rather than follow, to be the first to
introduce new products, processes and/or services;5
 risk-taking embraces a firm’s predilection for risk, its perception of risk as necessary for success in the
competitive environment in which it finds itself, and its tendency to act boldly and aggressively under
conditions of uncertainty, as well as tendency to take actions such as venturing into unknown new
markets, committing a large portion of resources to ventures with uncertain outcomes, and/or borrowing
heavily;6
5 This suggests that timing of innovation is important and thus companies that are pioneers are considered as more entrepreneurial than followers.
6 There are different proxies regarding this aspect. These could be differentiated as risk based on a) diversification (i.e. entry into new area), b) specific
sectoral risks (i.e. high technology activities being more risky than low technology activities) although this is only for technology risk, and c) size of
investments or size of loans.

4
 autonomy is defined as independent action by an individual or team aimed at bringing forth a business
concept or vision and carrying it through to completion; contrary to autonomy, dependence of
entrepreneur would prevent him to exercise any of the other features of EO; and
 competitive aggressiveness reflects the intensity of firm’s efforts to outperform industry rivals,
characterized by a combative posture and a forceful response to competitor’s actions. It differs from
proactiveness in the sense that proactiveness is about creating opportunities (i.e. getting to a place where
the competition hasn’t been yet), but competitive aggressiveness is about defending them (i.e. keeping
the competition out of place, or eliminating them if they arrive).
In continuation we use this conceptual framework but we extend it by exploring the role of networks in EO.
Overall, we aim to explore whether firms in emerging markets like CEE have all the attributes of developed EO and
how the specific external constraints or opportunities affect their EO.
2.2 Network Orientation
The importance of networks for entrepreneurship emerges from the interactive nature of knowledge generation
and utilisation. For KIEs to innovate the firm needs to access external knowledge through its networks and process
that knowledge combining it with internal knowledge. When favourable, networks operate as external scale
economies which impact a firm’s EO through benefits of close proximity, through backward or forward linkages or
joint infrastructure, they improve a firm’s rate of growth, reduce risks and improve innovativeness. If
developmental or opportunity driven networks surround KIEs they could facilitate their growth through
knowledge exchange with other firms. On the other hand, rent-seeking networks can block entry and growth of
entrepreneurially oriented firms. It is not obvious in which direction networking affects proactiveness and
autonomy as these seem to have ambiguous effects – i.e. they may both increase and decrease these two
dimensions of EO.
Malerba (2010) argues that successful entrepreneurs are ‘consummate networkers’ who thrive in communities.
Referring to views of the firm as a ‘processor of information’, Cohendet and Llerena (2010) see the governance of
the firm as consisting primarily in “the coordination of distributed pieces of knowledge and distributed learning
processes.” Lazonick (2002a, 2002b) in his theory of innovative enterprise explains how transformation of external
technological and market conditions is the essence of the innovative firm. For such a process to take place, an
enterprise has to pursue organizational integration or a set of incentives to employers and managers to cooperate
in contributing their skills and efforts toward the achievement of common goals. Business enterprise is a social
structure that is embedded in a broader (typically national) institutional environment. The industrial,
organizational, and institutional conditions of which networking is very important do promote or constrain the EO
of an enterprise. Network oriented entrepreneurial strategies are especially important in the context of emerging
markets where firms are deprived of various local knowledge sources.
Access to external knowledge may come from a number of sources, including cooperation with supply chain
partners, but also from cooperation with other kinds of organizations specifically devoted to research, or from
various published sources, such as journals and patent disclosures (Shaw, 1994). It has become commonplace to
note that the importance of networking for innovation has grown in recent decades due to the distributed nature
of the innovation process and the complexity of knowledge. A number of studies have demonstrated a positive
link between a firm’s R&D intensity and the number and intensity of its strategic relationships (Powell and Grodal,
2005). Eisenhardt and Schoonhoven (1996) point to a link between networking and various dimensions of EO, with
evidence from the US semiconductor industry, the more a company’s strategy is oriented toward risk-taking, the
more alliances it forms. This confirms the view that networking may be a risk reducing strategy in conditions of
highly uncertain technological opportunities. How various aspects of networking (both internal and external to the
organization) relate to EO has been studied by Walter et al. (2006) and Salaran and Maritz (2009). Stam and Elfring
(2008) investigate whether the intensity of networking can lead to higher levels EO.
The relationship between networking characteristics of the firm and its EO is important for catching up economies
where coupling of different knowledge sources is one of the key entrepreneurial challenges. Based on Table 1
below, we explore the extent of autonomy, innovativeness, risk-taking, proactiveness, competitive aggressiveness
and networking orientation. We refer to network orientation as firm’s perception about the importance of taking
part in collaborative agreements and awareness regarding advantages of collaborating en route to innovation.
Elements of networking are also embedded in autonomy, innovativeness and competitive aggressiveness

5
dimensions (see table 1 additions in italics). Network orientation, on the other hand, captures the ‘perception’ of
the firm with regard to importance of networks.
Table 1. Dimensions of entrepreneurial orientation (based on Covin and Slevin, 1989,1991; Lumpkin and Dess,
1996, 2001) including network orientation *7
Autonomy
Innovativeness
Risk-taking
Proactiveness
Competitive
aggressiveness
Network orientation
1.Firm origin
2.Factors
influencing
company
formation:
a. Market and
financial
opportunities
b. Technical
knowledge
c. Network
experience
1. Basic indicators:
a. Number of new
products/processes/services
introduced into the market
during the last three years
b. Share of new
products/processes/services
in total sales during the last
three years
c. Innovation productivity
d. Share of income/payment
from/for licensing/royalties
during the last three years
2. Sources of knowledge for
developing new products:
a. Value chain and market
networks
b. External R&D
c. In-house R&D
1. Source of funding to
start the company
2. Factors creating
obstacles in the
entrepreneurial activity
of the company:
a. Technology, market
and labour related
factors
b. Know-how related
factors
c. Financial constraints
3.Institutional barriers in
setting up and operating
company:
a. Corruption and
informal obstacles
b. Regulatory
impediments
1.Main strategy of the
firm
2.Implementation of
strategic activities:
a. Technology
upgrading
b. Management and
personnel training
3. Sources of
knowledge for
exploring new ideas:
a. External R&D
b. Market networks
c. Value chain and in-
house R&D
1. Primary
competitive
advantage of the
company
2.Factors creating
and sustaining
competitive
advantage
3.Export
performance
1. Participation in
collaborative agreements:
a. Production capability
acquisition
b. Technology
acquisition/knowledge
generation
2.Contribution of
networking to the
activities of the company:
a. in market-related areas
b. in technology-related
areas
Given the absence of this type of research in the context of the CEE we are not able to formulate prior hypotheses
and thus this chapter is largely of exploratory nature. Very tentatively we assume that all elements where external
factors play a very important role like networking (knowledge infrastructure, value chains) and risk taking
(financial system, venture capital) may be constrained i.e. EO may be deficient in these dimensions.
3 DATA AND RESEARCH METHODS
3.1 Selection of Sectors and Firms
We study two sectors, computer and related activities (NACE Rev1.1, K72) and manufacturing of machine tools
(NACE Rev 1.1, DK29.4). CEECs have inherited good competencies in mechanical technologies from the socialist
period, which explains why we have chosen machine tools. Also, CEE are integrated into global value chains in IT
which is quite new sector for these economies and where EO issues may be quite different when compared to old
sector as machine tools. Finally, two sectors are capital goods (machine tools) and ‘knowledge capital goods’
sectors (IT) and, despite their limited sizes as specialized supplier sectors, they play very important role in
knowledge systems of these economies.
We have selected a sample of firms in both sectors that can be considered KIEs. These are defined as firms that
are innovative, have significant knowledge intensity in their activity, and which explore and exploit innovative
opportunities. KIE have internal management, business model and organization that enable them to transform
knowledge into innovation. KIE operates based on new products and processes (innovations), which are
knowledge intensive, and, hence both use and generation of knowledge are essential part of KIE.
7 Italics denote elements, which we have added to dimensions of EO developed by cited authors.

6
The major operational criterion for selection of firms from machine tools and IT is that they are innovative. They
should have introduced new products, processes or services onto the market during the last three years. However,
in addition to this criterion, a selected firm should meet at least one of the auxiliary criteria below:
1. It is employing highly skilled personnel (MSc, PhDs) in engineering sciences,
2. It is continuously (not intermittently) investing in R&D, or
3. It has registered patents.
The use of these criteria would have made quite difficult use of a random sample. Hence, we have selected the
overall portfolio of firms so that they are diverse in several dimensions (success, strategy, etc.). Unlike AEGIS
definition of KIEs firms in our sample are both new and old firms, but they are all innovating and knowledge
intensive as proxied by our auxiliary criteria. Also, KIEs could be of domestic, foreign or mixed origin. A restriction
of sample on new and young firms only would go against the systemic view of entrepreneurship. Last but not
least, our strict criteria regarding knowledge intensity of firms would significantly limit the portfolio of potential
firms to be selected, especially in small CEE economies.
3.2. Data Collection and the Sample
Data that forms the basis for this chapter have been gathered based on face-to-face structured interviews with
managers in 60 firms in Czech Republic, Hungary, Poland and Croatia during April-May 2011. The sample involves
18 Czech, 15 Croatian, 6 Hungarian and 21 Polish firms. Table 2 details the firms by sector. The managers were
asked questions related to the formation stage of their companies, market conditions, their networks, research
activities and institutional structure.
Table 2. Number of firms by country and sector.
Software
Machine Tools
Czech Republic
4
14
Poland
12
9
Hungary
2
4
Croatia
12
3
Total
30
30
The sample consists of 30 software (SW) and 30 machine tools (MT) firms. For both sectors in the sample, more
than 60% of the firms are SMEs older than 8 years. Moreover, more than 80% of all firms in the sample are
independently located indicating that they are not members of a physical cluster. Only a minority of software
firms are located in S&T parks and city clusters, which are formed spontaneously.
3.3. Indicators of entrepreneurial orientation
We use a number of individual indicators as proxies to measure the dimension of EO (cf. Table 1). These comprise
a combination of observable measures (both numeric and string) and scale indicators formed by presenting the
respondents with statements using a five-level Likert Scale approach ranging from ‘not important’ to ‘very
important’. We employ factor analysis to collapse a number of indicators into representable concepts explaining
the dimensions of EO. Table 3 below presents a summary of indicators in operationalizing the concepts.
Respondents were either directly asked about the answers to particular questions or were presented statements
to assess the importance of certain indicators at a 5-level Likert scale approach from ‘not important’ to ‘very
important’. For autonomy, selected indicators aim to explain the extent of (in) dependence in an established firm
along with the exploration of factors that the owners have identified or possessed when setting up the firm. For
innovativeness, indicators explain whether the firm showed substantial effort in innovating or not. Risk-taking
indicators assess first the financial aspect when starting up the company; secondly the technological, market and
financial factors influencing the entrepreneurial activities in the company, and thirdly the institutional barriers
which have significant relevance, particularly in the case of CEECs. The indicators of proactiveness show
commitment to innovation, including the use of external sources of knowledge. Competitive aggressiveness
indicators show determinants of the competitive advantage of the company and actions to sustain their

7
competitive advantage including exporting. Finally, we have added dimension of network orientation to EO by
using indicators that show the importance of participation in different kinds of networks and the contribution of
these networks to the company growth.
Table 3. Indicators for assessing entrepreneurial orientation of enterprises and networking orientation.
A. Categories that emerged from exploratory factor
analysis of all statements in B.
B. Respondents were asked to give answers about A / were presented statements to
assess the importance of A (5 level from not important to very important).
Autonomy
1. Firm origin
Independent company, corporate spin-out, partner firm.
2. Factors influencing company formation:
a. Market and financial opportunities
b. Technical knowledge
c. Network experience
a. Knowledge of the market, Availability of finance and Opportunities in a public
procurement initiative.
b. Technical/engineering knowledge in the field, Design knowledge, Software
knowledge.
c. Work experience in the current activity field, Networks built during previous career.
Innovativeness
1. Innovation: types and commercial relevance
Number of new products/processes/services introduced into the market during the
last three years, Share of new products /processes/services in total sales during the
last three years, Innovation productivity, Share of income/payment from/for
licensing/royalties during the last three years.
2. Sources of knowledge for developing new products
a. Value chain and market networks
b. External R&D
c. In-house R&D
a. Clients, Suppliers, Competitors, Trade fairs, conferences and exhibitions.
b. Government or public research institutes, Universities or other higher education
institutes, External commercial labs/ R&D firms, Scientific journals and other trade or
technical publications including patent disclosures.
c. In-house (know-how, R&D unit in your firm).
Risk-taking
1. Source of funding to start the company
Own resources, family member, business angel, etc.
2. Factors creating obstacles in the entrepreneurial
activity of the company
a. Technology, market and labour related factors
b. Know-how related factors
c. Financial constraints
a. Technology risk, Demand or market constraints, Marketing problems (i.e. lack of
marketing and management know-how), Difficulty in finding employees with technical
skills, Difficulty in keeping employees with technical skills.
b. Lack of technological know-how, Difficulty in finding partners for technological
collaboration.
c. Large sunk investment (Capital stock in which we have invested has limited
flexibility), Funding constraints.
3.Institutional barriers in setting up and operating
company
a. Corruption and informal obstacles
b. Regulatory impediments
a. Poorly enforced copyright and patent protection, High level of corruption,
Government officials favour well connected individuals.
b. Too complex taxation regulations, High tax rates, Time consuming regulatory
requirements for issuing permits and licenses, Insufficient competition law to curb
monopolistic practices, Bankruptcy legislation making the cost of failure too great,
Unsupportive labour market legislation.
Proactiveness
1. Main strategy of the firm
To produce distinctive products, to target new markets or to produce standardized
products.
2.Implementation of strategic activities
a. Technology upgrading
b. Management and personnel training
a. Renewal of advanced machinery or other equipment, Large scale update of
computer hardware and software, Purchase or licensing of patents from other
companies or organizations.
b. Preparation of formal business plan, Internal or external training of personnel.
3. Sources of knowledge for exploring new ideas
a. External R&D
b. Market networks
c. Value chain and in-house R&D
a. Government or public research institutes, Universities or other higher education
institutes, External commercial labs/ R&D firms.
b. Clients or customers, Competitors, Trade fairs, conferences and exhibitions.
c. Suppliers, In-house (know-how, R&D unit in your firm), Scientific journals and other
trade or technical publications including patent disclosures.
Competitive
aggressiveness
1. Primary competitive advantage of the company:
Product/service novelty, Product/service quality, Product customisation, Cost
competitiveness.
2. Factors creating and sustaining competitive
advantage:
R&D activities, Alliances/partnerships, Marketing and promotion to sustain their
competitive advantage.
3. Export performance
Share of exports in total sales of the company during 2009.
4. Employment strategies
a. Employee trend from start to 2010
b. Skilled employee trend
a. Ratio of number of employees at the start of the company to number of employees
in 2010
b. Share of skilled labour (at different levels, i.e. BSc, MSc and PhD holders) in total
employees.
Netwo
rking
orient
ation
1. Participation in collaborative agreements:
a. Production capability acquisition
b. Technology acquisition/knowledge generation
a. Outsourcing, Subcontracting, Technical cooperation agreement, Supply agreement,
Value added reseller.
b. R&D agreement, Licensing agreement

8
2.Contribution of networking to the activities of the
company: a. in market-related areas
b. in technology-related areas
a. Finding clients, Finding suppliers, Gathering information about competitors,
Accessing distribution channels, Assistance in obtaining business loans/attracting
funds, Advertising and promotion, Managing production and operations, Assistance in
arranging taxation or other legal issues, Exploring export opportunities.
b. Developing new products, Recruiting skilled labour
4. RESULTS
This research is of an exploratory nature and where appropriate we employ factor analysis to group individual
indicators used within the framework in Table 1.
4.2. Autonomy
The conventional view of entrepreneurship is that it is a ‘sheer individual act’ be it either individual person or
organisation. Hence, the issue of organisational independence of firm and the type of opportunity that lies behind
its formation are relevant in understanding autonomy issues.
In our sample of firms 90% of SW firms are independent start-ups, while 60% of MT firms are corporate-spin-outs,
indicating that starting a business in the latter necessitates initial nurturing phase under a larger, established firm.
This may be expected as MT firms are older with competencies inherited from the socialist period while SW firms
are new ventures which most often have not been part of larger enterprises.
4.2.1. Importance of Factors for Company Formation
A factor analysis applied to the indicators assessing the importance of factors for company formation identified
three conceptually meaningful components (i.e., underlying constructs) (Table 4). The entrepreneurial activity as
an independent action demands capabilities and opportunities with regard to the market related, networks
related and technical functional areas. Component 1 highlighted the market and finance related opportunities and
capabilities. Component 2 highlighted the technical capability including design and software knowledge.
Component 3 highlighted the network-related experiences especially those that are outcomes of the previous
work experience and networks built during the previous career. These three factors highlight the importance of
coupling as well as relative independence of markets, technology and networks in the formation of new firms.
Table 4. Factor analysis for ‘Importance of factors for the formation of company’.
Market and
financial
opportunities
Technical
knowledge
Network
experience
Knowledge of the market 0.791 -0.146 -0.100
Availability of finance 0.688 0.026 0.323
Opportunities from a public procurement initiative 0.718 0.328 -0.004
Technical/engineering knowledge in the field -0.112 0.465 0.528
Design knowledge 0.019 0.734 0.164
Software knowledge 0.111 0.839 -0.121
Work experience in the field -0.040 -0.022 0.865
Networks built during the previous career 0.354 0.028 0.609
Note: KMO measure of sampling adequacy=0.61; Bartlett's test of sphericity significant at 0.002 level; Cumulative % of variance explained is 61.38%.
Descriptive results show that these are KIEs where technological skills play role but also that these capabilities
have to be coupled with knowledge of the market. The firms in the sample are mainly self-funded even in MT
sector where firm necessitates more capital-intensive investment than in SW sector. As expected,
technical/engineering knowledge in the field of activity are rated as highly important by more than 90% of the
companies which confirms that firms in the sample are indeed KIEs. Work experience in the activity field is rated
as highly important for company formation by almost 90% of the firms. More than 85% of the firms’ value
networks built in employees’ previous careers as very important and moderately important.

9
Table 5. Important factors for formation of company (% of firms expressing the factors as ‘important’ and ‘very
important’)(NSW=30, NMT=30)
SW
MT
All firms
1. Market and financial opportunities
Knowledge of the market
53.33
601
56.74
Availability of finance
16.73
301
23.34
Opportunities from a public procurement initiative
6.72
3.31
53
2. Technical knowledge
Technical/engineering knowledge in the field
86.71
93.3
901
Design knowledge
63.3
53.32
58.32
Software knowledge
901
36.72
63.33
3. Network experience
Work experience in the field
80
100
90
Networks built during the previous career
43.33
501
46.74
11 missing value, 2 2 missing values, 33 missing values, 44 missing values.
Table 6. Major features of autonomy dimension of entrepreneurial orientation in machine tool and software
sectors in CEE.
EO dimension
Dimension category
Results
Synthesis
Autonomy :
Independent action
by an individual or
team aimed at
bringing forth a
business concept or
vision and carrying it
through to
completion.
Firm origin
90% of SW firms are independent start-
ups, 60% of MT firms are corporate-spin-
outs
Autonomous or
corporate driven
entrepreneurship
exploiting existing
knowledge based on
previous experience
and recognising
market opportunities.
Factors influencing company
formation
Market and financial
opportunities
Knowledge of the market is very
important for 57% of firms, availability of
finance for financial 23%
Tech knowledge
Technical knowledge is very important
for 90% of firms, software knowledge
63%, design knowledge 58%.
Network experience
Work experience in the activity field is
highly important for almost 90% of the
firms. 47% of the firms value networks
built in the previous career as very
important.
4.3. Innovativeness
4.3.1. Innovation: types and commercial relevance
We investigated the number of new products/processes/services introduced by the firms onto the market during
the 2007-2009 period, their share in total sales and innovation productivity calculated as the number of new
products/processes/services per employee in the firm. Innovation productivity of the firms in the sample ranges
between 0 and 7.2, with an outlier firm with the score 24.4 innovations per firm. The majority of the firms, in both
sectors, characterize themselves as producing distinctive products and identify customers as the most important
source of knowledge for developing new products. These indicate that the sample is formed of specialized
suppliers. Thus, when they were asked about innovations, we made sure that innovation is defined as a radically
new or significantly improved product compared to other bespoke products produced by the firms. Hence, similar
bespoke products are not counted as separate innovations.
Table 7 shows that by absolute numbers, 50% of the firms have introduced more than 10 innovations onto the
market during the last three years. There are no differences between the two sectors with regard to absolute

10
number of innovations. In addition, half of the firms have more than 50% of sales based on new products during
the last three years. The sales as proxy are quite unreliable as innovations may not have an immediate success or
may have an immediate success but this may not last. Therefore, innovation productivity (number of innovations
per employee) may be a better proxy, particularly because it is also an input indicator.
Table 7. Innovations, share of innovations in total sales and innovation productivity (%)
SW
MT
All firms
1. New products/processes/services
introduced onto the market during the last
3 years
N=30
N=30
N=60
More than 10
50
46.7
48.3
Between 5 and 10
16.7
23.3
20
Less than 5
33.3
30
31.7
Total
100
100
100
2. Share of new products/processes/services
in total sales during the last 3 years (%)
N=28
N=30
N=58
Equal to or more than 50%
53.3
43.3
48.3
Between 10% and 50%
26.7
46.7
36.7
Equal to or less than 10%
13.3
10
11.7
Total
93.3
100
96.7
3. Innovation productivity (innovations per
employee)
N=29
N=30
N=59
Equal to or more than 2
16.7
6.7
11.7
Between 0.5 and 2
23.3
3.3
13.3
Between 0.1 and 0.5 or equal to 0.5
33.3
30
31.7
Equal to or less than 0.1
23.3
60
41.7
96.7
100
98.3
11 missing value, 2 2 missing values, 33 missing values, 44 missing values.
Almost 40% of the firms in the sample pay for licenses while 20% receive payments for their licences. However,
there are major differences between the two sectors. Vast majority of MT firms neither pay for formalized
knowledge nor sell it indicating that untraded know-how is more important in the sector. In contrast, half of the
SW firms pay between 1-49% of their revenues for other organizations’ licenses as a way to acquire knowledge
and innovate. Moreover, 70% of SW firms have an income from the sale of their own licenses, which indicates
they are able to innovate independently.
Table 8. Licensing income and payment as percentage of total revenues (%).
SW
MT
All firms
1. Share of payment for licensing
N=28
N=15
N=43
Between 1 and 49%
50
3.3
26.7
0
43.3
46.7
45
Total
93.3
50
71.7
2. Share of income from licensing
N=29
N=27
N=56
100%
16.7
3.3
8.3
Between 50% and 99%
20
-
10
Between 1 and 49%
33.3
-
18.3
0
26.7
86.7
56.7
Total
96.7
90
93.3
4.3.2. Importance of sources of knowledge for developing new products and processes
The results of factor analysis (table 9) suggest that there are three major sources of knowledge in developing ne
products/processes: value chain and market networks or external R&D networks or in-house R&D. In that respect,
component 1 highlighted the networks with clients, suppliers, competitors and fairs and exhibitions. Component 2

11
highlighted the external R&D organisations as the major source of knowledge. Component 3 highlighted the in –
house know how which in some cases is formalised R&D.
Table 9. Factor analysis for importance of sources of knowledge for developing new products/processes.
Innovativeness
via value chain &
market networks
Innovativeness
via external R&D
Innovativeness
via in-house
R&D
Clients 0.758 0.089 0.052
Suppliers 0.476 -0.237 -0.557
Competitors 0.782 0.052 -0.037
Trade, fairs, conferences and exhibitions 0.789 0.203 0.014
Government or public research institutes 0.044 0.860 -0.017
Universities or other higher education institutes 0.003 0.773 -0.071
External commercial labs/R&D firms 0.278 0.338 -0.281
Scientific journals/trade/technical publications including patent disclosures 0.210 0.768 0.100
In-house know-how (R&D unit in your firm) 0.198 -0.096 0.828
Note: KMO measure of sampling adequacy=0.62; Bartlett's test of sphericity significant at 0.000 level; Cumulative % of variance explained is 60.55%, all firms
(N=60).
A ninety percent of firms rate their clients as very and moderately important source of knowledge for developing
new products (Table 10). Only half of them consider suppliers as significant sources for product development. At
most 10% of firms in both sectors assess knowledge sources such as universities, government research institutes
and private R&D labs as significant for developing new products. This result is similar to results from innovation
surveys and it confirms that these sources are not important direct source of new knowledge in the CEE. Internal
know-how is the most important source of knowledge for developing new products/processes in both sectors
(Table 10).
Table 10. Importance of sources of knowledge for developing new products/processes (% of firms expressing the
sources of knowledge as ‘important’ and ‘very important’)
SW
MT
All firms
1. Innovativeness via value chain and
networks
Clients
73.3
50
61.7
Suppliers
20
301
251
Competitors
23.3
201
21.71
Trade, fairs, conferences and exhibitions
26.7
201
23.31
2. Innovativeness via external R&D
Government or public research institutes
6.71
6.72
6.73
Universities or other higher education institutes
10
6.72
8.32
External commercial labs/R&D firms
13.3
6.72
102
Scientific journals/trade/technical publications
including patent disclosures
23.3
101
16.71
3. Innovativeness via in-house R&D
In-house know-how (R&D unit in your firm)
83.31
63.32
73.33
11 missing value, 2 2 missing values, 33 missing values.
Table 11. Major features of innovativeness dimension of entrepreneurial orientation in machine tool and software
sectors in CEE.

12
EO dimension
Dimension category
Results
Synthesis
Innovativeness:
Willingness to
support creativity
and
experimentation in
introducing new
products/services,
and novelty,
technological
leadership and R&D
in developing new
products and
processes.
Innovation: Types and commercial relevance
Number of new products/
processes/services
introduced into the market
during the last three years
50% of the firms have introduced
more than 10 new
products/processes/services onto the
market during the last three years.
No differences between the two
sectors.
50% of the firms have more than 50%
share of 'innovative sales' during the
last three years.
Oriented towards
developing
new/distinctive
products;
Customers as the
most important
source of knowledge
> specialized
suppliers.
Innovation active
firms; specialized
suppliers dependent
on own R&D, and
value chains, only
10% on external
R&D.
SW firms are
involved in licence
trade; no patentors.
Share of new
products/processes/services
in total sales during the last
three years
50% of the firms have more than 50%
share of 'innovative sales' during the
last three years.
Innovation productivity (IP)
IP ranges between 0 - 7.2 and differs
considerably between sectors. SW
has higher IP.
Share of income/payment
from/for licensing/royalties
during the last three years
Almost 40% of the firms pay and
almost 20% receive payments for
their licences. MT firms are not
buying licences. In contrast, 50% of
the SW firms pay between 1-49% of
their revenues for licenses.
Moreover, 70% of SW firms have an
income from the sale of their own
licenses. Only one firm (SW) has a
registered patent.
Sources of knowledge for developing new
products
Value chain and market
networks
90% rate clients as very and
moderately important source (60%
rate as very important). Trade fairs
and exhibitions are important for only
20% of firms in product development.
External R&D
Only 10% of firms rely on external
R&D (universities, government
research institutes and private R&D
labs) for product development.
In-house R&D
For almost 80% of firms in-house
knowledge is very important source
of knowledge. This is more so in SW
and somewhat less in MT where
suppliers and buyers take more part
in innovation.
4.4. Risk-taking orientation
In the context of CEE countries, the market, technological and institutional conditions affects risk-taking including
the institutional barriers to setting up a company.
4.4.1. Source of funding to start a company
The main source of funding for company establishment in 90% of cases is the founder(s)’ own finances. There are
no significant differences with regard to the two sectors in that respect. Venture capital is almost non-existent
even in SW sector.

13
4.4.2. Factors creating obstacles for entrepreneurial activity of the company
The results of factor analysis suggest that entrepreneurial activity is constrained by technology, market and labour
factors; by know-how and by financial constraints (table 12). Component 1 highlights the technology risk related
to the innovation, limited demand or market constraints, and the difficulty in finding and keeping employees with
good technical skills. This indicates a scarcity of skilled employees which is the emerging problem in CEE.
Component 2 highlights the lack of intra-firm technical know-how as well as external know-how (difficulty to find
partners for technological collaboration). Finance does not seem to be a problem for the formation of firms but
much more for firm growth which requires high fixed investments (sunk costs).
Table 12. Factor analysis for ‘Factors creating obstacles for the entrepreneurial activity of the company’.
Technology,
market and labour
constraints
Know-how
constraints
Financial
constraints
Technology risk 0.715 0.158 -0.198
Demand or market constraints 0.601 0.239 -0.015
Marketing problems (lack of marketing and management know-how) -0.495 0.480 -0.186
Difficulty in keeping employees with technicalskills 0.843 -0.038 0.051
Difficulty in finding employees with technicalskills 0.372 0.386 -0.051
Lack of technological know-how 0.169 0.785 -0.030
Difficulty in finding partners for collaboration 0.069 0.757 0.154
Large sunk investment -0.217 -0.109 0.768
Funding constraints 0.117 0.147 0.743
Note: KMO measure of sampling adequacy=0.59; Bartlett's test of sphericity significant at 0.002 level; Cumulative % of variance explained is 55.47%, all firms
(N=60).
Majority of the firms (60-70%) consider technology risk, demand and market constraints, and difficulties in finding
and keeping employees with technical skills as highly or moderately important factors to their entrepreneurial
activities (Table 13). For almost 80% of firms, lack of technological know-how and difficulty in finding partners is
not a major constraint. Lack of problems in technical collaboration may well be explained by weak demand by
firms for this type of cooperation which includes universities, research institutes and commercial labs. For some
firms, financial constraints represent one of the major barriers to product innovation. However, large sunk costs or
fixed investments do not seem to be an important obstacle. This may be expected given the relatively low
development ambition of firms. However, funding constraints in firm growth are very and moderately important
by almost 75% of the firms.
Table 13. Factors creating obstacles for the entrepreneurial activity of the company (% of firms expressing the
factors as ‘important’ and ‘very important’)
SW
MT
All firms
1. Technology, market and labour constraints
Technology risk
26.71
502
38.33
Demand or market constraints
402
601
503
Marketing problems (lack of marketing and
management know-how)
201
3.32
11.73
Difficulty in keeping employees with technical skills
23.31
46.71
352
Difficulty in finding employees with technical skills
201
501
352
2. Know-how constraints
Lack of technological know-how
13.31
13.32
13.33
Difficulty in finding partners for collaboration
101
3.32
6.73
3. Financial constraints
Large sunk investment
26.72
16.72
21.74
Funding constraints
43.3
301
36.71

14
11 missing value, 2 2 missing values, 33 missing values, 44 missing values.
4.4.3. Institutional barriers to setting up a company
A factor analysis applied to nine statements to assess barriers to setting up their companies reveals that these can
be grouped in two (Table 14), indicating differences between formal and informal barriers. Corruption and
informal obstacles include poorly enforced patent protection, a high level of corruption and favouring of well-
connected individuals by government officials. Regulatory impediments relate to issues with regard to taxation,
licenses, competition law, bankruptcy and labour market legislations.
Table 14. Factor analysis for ‘institutional barriers for setting up a company’.
Corruption and
Informal Obstacles
Regulatory
Impediments
Poorly enforced copyright and patent protection 0.726 0.160
High level of corruption 0.929 0.055
Government officials favour well connected individuals 0.943 -0.097
Too complex taxation regulations -0.244 0.897
Too high tax rates -0.061 0.897
Time consuming regulatory requirements for issuing permits and licenses
0.187 0.403
Insufficient competition law to curb monopolistic practices 0.405 0.555
Bankruptcy legislation makes the cost of failure too great 0.507 0.520
Unsupportive labour market legislation 0.482 0.516
Note: KMO measure of sampling adequacy=0.70; Bartlett's test of sphericity significant at 0.000 level; Cumulative % of variance explained is 63.18%.
Almost 65% of the firms regard poorly enforced patent protection as insignificant barrier to setting up a company.
This is probably due to the fact that firms in the sample do not have any patenting activities during the last three
years. Still, 35% of firms consider this issue as moderately or very important. Firms are divided in their opinions
about the level of corruption and favouring of individuals in acting as a barrier for starting a company. Some
consider these as an important barrier, while for some they are not important. The regulatory barriers to setting
up a company – i.e. complex and high taxes, time consuming regulatory requirements for licenses, insufficient
competition law, costly bankruptcy legislation and unsupportive labour market legislation, are assessed as not
important by more than 60% of the companies. These findings show that legal institutional reforms have been in
place in the CEECs, whereas issues with regard to informal barriers need to be tackled. Differences between the
two sectors in terms of regulatory impediments are insignificant.
Table 15. Major features of risk taking dimension of entrepreneurial orientation in machine tool and software
sectors in CEE.
EO dimension
Dimension category
Results
Synthesis

15
Risk-taking
is a firm’s tendency
for risk, its
perception of risk as
necessary for
success in the
competitive
environment in
which it finds itself,
and its tendency to
act boldly and
aggressively under
conditions of
uncertainty, as well
as tendency to take
actions such as
venturing into
unknown new
markets, committing
a large portion of
resources to
ventures with
uncertain outcomes,
and/or borrowing
heavily.
Source of funding to
start the company
The main source of funding is the
founders' own finances (90%). No
differences between SW and MT.
Risk taking is
constrained by weak
demand and markets,
technology risks, and
skills shortages as well
as by regulatory
impediments.
Corruption is present
but unevenly.
Financial constraints
are not the major
obstacles.
Factors creating obstacles in the
entrepreneurial activity of the company
Technology, market
and labour related
factors
Majority of the firms (60-70%) consider
demand and market constraints,
technology risk and skills shortages as
highly or moderately important factors
to their entrepreneurial activities. Lack of
marketing and management know-how
is not considered to be a major problem.
Know-how related
factors
Lack of technological know-how and
difficulty in finding partners is an issue
only for 20% of firms.
Financial constraints
Financial constraints are one of the
major barriers for more than 20-40% of
firms.
Institutional barriers in setting up and
operating the company
Corruption and
informal obstacles
For almost 65% of the firms poorly
enforced patent protection is not an
important barrier > firms in the sample
do not have patenting activities. Still,
35% of firms consider this issue as
moderately or very important. Firms are
divided about the level of corruption and
favouring of individuals as a barrier.
Regulatory
impediments
The formal barriers for setting up a
company – i.e. complex and high taxes,
time consuming regulatory requirements
for licenses, insufficient competition law,
costly bankruptcy legislation and
unsupportive labour market legislation,
are assessed as not important by more
than 60% of the companies.
4.5. Proactiveness
4.5.1. Core strategy of the company
Almost 90% of the firms state that their core strategy involves production of distinctive products and targeting
new markets. This requires proactivness and the vision in order to grasp market opportunity for a new product or
entering a new market by the firm’s existing products where these products were not traded before.
4.5.2. Implementation of strategic activities in the firm
A factor analysis applied to five statements about the extent of strategic activities resulted in two components
pertaining to technology upgrading and management and personnel training (table 16). These are both knowledge
intensive activities as would be expected from KIEs.
Table 16. Factor analysis for ‘Implementation of strategic activities in the firm’.

16
Technology
upgrading
Management
and
personnel
Renewal of advanced machinery and other equipment 0.474 -0.247
Large scale update of computer hardware and software 0.701 0.277
Purchasing and licensing of patents from other organizations 0.820 -0.033
Preparation of formal business plan -0.345 0.796
Internal and external training of personnel 0.309 0.808
Note: KMO measure of sampling adequacy=0.48; Bartlett's test of sphericity significant at 0.000 level; Cumulative % of variance explained is 60.58%.
Table 17 shows the frequency with which firms upgrade their existing technologies as a way to stay ahead of
competition. These comprise activities such as renewal of advanced machinery, update of computer and software
and purchasing patents from other organizations. Frequent implementation of these activities means that firms
are proactive and keep up with changes in technology in order to introduce innovations ahead of the competition
and acting in anticipation of future demand to create change and shape the environment. On the whole, majority
of firms invest in machinery and computer update; but purchase of licensing is limited to at most 30%. Firms also
need to continuously improve their management plans and make sure their personnel holds up-to-date
knowledge in the field. About 60% of the firms in both sectors implement these activities often (Table 17).
Table 17. Implementation of strategic activities (% of firms expressing the strategic activities as ‘important’ and
‘very important’)
SW
MT
All firms
1. Technology upgrading
Renewal of advanced machinery and other equipment
303
40
353
Large scale update of computer hardware and software
53.3
26.7
40
Purchasing and licensing of patents from other organizations
30
6.72
18.32
2. Management and personnel training
Preparation of formal business plan
53.3
56.72
552
Internal and external training of personnel
60
56.72
58.32
2 2 missing values, 33 missing values.
4.5.3. Importance of sources of knowledge for exploring new ideas
The use of external sources of knowledge for exploring new ideas, not necessarily developing new products in any
form, indicates the extent of proactiveness. The respondents were presented with five statements as shown in
Table 18. A factor analysis applied on the indicators resulted in three components pertaining to external R&D,
value chain relationships and market networks.
Table 18. Importance of sources of knowledge for exploring new ideas
External
R&D
Market
networks
Value chain
Government or public research institutes 0.862 -0.149 -0.073
Universities or other higher education institutes 0.760 -0.039 0.220
External commercial labs/R&D firms 0.648 0.201 -0.270
Suppliers 0.050 0.086 0.783
Scientific journals/trade/technical publications including patent disclosures
0.503 0.081 0.609
In-house know-how (R&D unit in your firm) 0.175 0.064 -0.500
Clients -0.120 0.641 -0.171
Competitors -0.016 0.880 0.022
Trade, fairs, conferences and exhibitions 0.195 0.769 0.293

17
Note: KMO measure of sampling adequacy=0.42; Bartlett's test of sphericity significant at 0.000 level; Cumulative % of variance explained is
60.17%.
Table 19 shows that public research institutes, universities and private R&D labs are not major sources for
exploring new ideas. This suggests that the R&D system is not involved in firms’ upstream activities. This can be
due to differences in knowledge profiles of these organizations in the CEECs or due to the absence of ‘interface’
institutions. Still, for approximately 30% of firms universities are either very or moderately important as sources of
new ideas. These results are broadly similar to results from innovation surveys in other countries.
Market networks like links with clients, competitors and trade fairs and exhibitions are rated as important by
almost 70% of the firms (Table 19). More than 60% of the firms assess particularly their clients as very important
sources of knowledge for exploring new ideas. 80% of the firms confidently state that they rely on their own in-
house knowledge for exploring new ideas in order to be proactive. More than 60% of the firms value suppliers and
trade journals as important sources of such knowledge. Interviews revealed that specific trade journals are good
sources of information for catching up with the recent developments in the field. Suppliers, on the other hand,
have contacts with most of the firms in the field; thus they transfer knowledge from one firm to another. In that
sense, the information they provide is valuable.
Table 19. Importance of sources of knowledge for exploring new ideas (% of firms expressing the sources of
knowledge as ‘important’ and ‘very important’)
SW
MT
All firms
1. External R&D
Government or public research institutes
3.3
3.32
3.32
Universities or other higher education institutes
13.3
6.7
10
External commercial labs/R&D firms
6.7
6.7
6.7
2. Market networks
Suppliers
26.7
26.72
26.72
Scientific journals/trade/technical publications
including patent disclosures
30
23.31
26.71
In-house know-how (R&D unit in your firm)
90
66.72
78.32
3. Value chain
Clients
63.3
63.31
63.31
Competitors
40
33.3
36.7
Trade, fairs, conferences and exhibitions
33.3
36.7
35
11 missing value, 2 2 missing values, 33 missing values.
Table 20. Major features of proactiveness dimension of entrepreneurial orientation in machine tool and software
sectors in CEE.
EO dimension
Dimension category
Results
Synthesis
Proactiveness
is an opportunity-
seeking, forward-
looking perspective
involving introducing
Core strategy of
the firm
Core strategy of almost 90% of firms
involves production of distinctive
products and targeting new markets. In
MT this is more important strategy than
in SW. This can possibly be explained by
more distinctive nature of MT products
vs stronger service component of SW.
Proactiveness is
realized through
distinctive products
and new markets and
based on technology
upgrading and
training.

18
new products or
services ahead of
the competition and
acting in anticipation
of future demand to
create change and
shape the
environment and it
captures the
tendency of a firm to
lead rather than
follow, to be the first
to introduce new
products, processes
and/or services.
Implementation of
strategic activities
Technology
upgrading
Majority of firms invest often or
sometimes in machinery and computer
updates; but purchase of licensing is
limited to at most 30% of firms. MT is
more inclined to renewal of machines,
whereas SW is more into upgrading of
computer systems.
Main sources of new
ideas are own know-
how, market networks
and value chain
partners.
Management and
personnel training
About 60% of the firms in both sectors
implement these activities often.
Sources of knowledge for exploring new ideas
External R&D
Public research institutes, universities
and private R&D labs are marginally
involved as sources for exploring new
ideas. Still, for around 30% of firms
universities are either very important or
moderately important source for new
ideas.
Market networks
Market networks like links with clients,
competitors and trade fairs and
exhibitions are rated as important by
almost 70% of the firms. More than 60%
of the firms assess particularly their
clients as very important sources of
knowledge for exploring new ideas.
Value chain and in-
house R&D
80% of firms rely on their own in-house
knowledge. More than 60% of the firms
value the suppliers and trade journals as
important sources of knowledge for
exploring new ideas.
4.6. Competitive Aggressiveness
To measure the extent of competitive aggressiveness in firms we asked them to identify their major competitive
advantage and what actions do they undertake to create and sustain it. Export performance is also an important
measure to assess firm’s intensity of effort to outperform its rivals and thus we used it as a proxy. This is a very
important proxy in CEE where good local firms are often struggling how to become established exporters.
4.6.1. Primary competitive advantage of the company
A large majority of firms (75-95%) rate all factors of primary competitive advantage (product/service novelty,
quality, and customisation) as very important while costs are somewhat less important indicating again that they
are specialized suppliers.
4.6.2. Creating and sustaining competitive advantage
Entrepreneurial firms need to be able to sustain the competitive advantage they have. This involves continuous
effort into R&D activities, alliances/partnerships and marketing. R&D activities within the firm are very important
factor to sustain competitive advantage for 60% of firms (Table 21). This is true for 80% of SW firms and 50% of
MT firms. Alliances and partnerships are more important for SW to maintain the competitive advantage, whereas
they are less significant for MT with almost 60% of these firms declaring it as not important. This reflects
differences in sector characteristics since SW firms are customizers of generic solutions supplied by international
software firms via alliances and partnerships, on the other hand MT firms are more independent when focusing on
customer-oriented projects. Finally, marketing and promotion are important for 60% of SW firms, but less

19
significant for MT. Again, SW firms depend more on successful promotion and advertising as they often produce
end-user products, while the specialised MT firms do not need to incur such costs as they are in closer links with
their clients.
Table 21. Factors creating and sustaining competitive advantage. (% of firms expressing the factors as ‘important’
and ‘very important’)
SW
MT
All firms
R&D activities
76.7
46.71
61.71
Alliances and partnerships
53.31
36.7
451
Marketing and promotion
50
13.31
31.71
11 missing value
4.6.3. Export performance
Lastly, we asked firms about the share of exports in their total sales. If this ratio is equal to or more than 95%, we
consider the firm as ‘sole exporter’; if equal to or below 5% ‘not exporter’; and as ‘exporter’ for values between 5
and 95. This provides us with a tangible indicator to assess the competitiveness strategy based on an aggressive
approach to conduct of export. Within the whole sample 40% of the firms are ‘sole exporters’. Broken down by
industry, this corresponds to 60% of SW firms and 20% of MT. Only a minority of the firms aim solely to national
markets. In overall, a high share of sole exporters suggest that our sample has picked up ‘better’ or more
aggressive firms in both sectors.
Table 23. Major features of competitive aggressiveness dimension of entrepreneurial orientation in machine tool
and software sectors in CEE.
EO dimension
Dimension category
Results
Synthesis
Competitive
aggressiveness:
reflects the intensity
of firm’s efforts to
outperform industry
rivals, characterized
by a combative
posture and a
forceful response to
competitor’s
actions. It differs
from proactiveness
in the sense that
proactiveness is
about creating
opportunities, but
competitive
aggressiveness is
about defending
them.
Primary competitive
advantage of the
company
The major factors of competitive
advantage of companies are the
product/service novelty, product/service
quality, product customization and cost
competitiveness.
Firms are competing
on all competitive
factors (novelty,
quality, customization
and costs) by largely
serving both domestic
and export markets.
SW firms rely more on
R&D and alliances in
sustaining these
advantages.
Employment growth is
based on generic
expansion.
Factors creating and
sustaining competitive
advantage
R&D, alliances and promotion activities
are important factors in sustaining firms’
competitive advantages. These factors
are significantly more important in SW
than in MT.
Export performance
40% of firms are sole exporters (export
95% or more of sales) of which SW firms
60% and MT 20%. Only a minority of the
firms aim solely to national markets.

20
4.7. Network Strategies
In addition to Lumpkin and Dess’ (2001) dimensions for entrepreneurial strategies, we also wanted to investigate
the networking strategies of the firms. From systemic perspective, entrepreneurship is a collective and not only
individual level activity and it may influence firm’s performance, especially growth. Yet the network component of
entrepreneurial strategies is barely touched upon in the entrepreneurship literature.
4.7.1. Importance of participation in collaborative agreements
We investigated the firms’ assessment of participation in collaborative agreements such as outsourcing,
subcontracting, R&D/technical cooperation/licensing agreements, supply agreement and as value added reseller.
In a sense, we aim to find out why firms engage in collaborative activities, if indeed they do? Respondents were
presented with seven different types of collaborative agreements and were asked to assess it from ‘not important’
to ‘very important’ using a five level Likert Scale approach. A factor analysis resulted in two components that
differentiated between production capability acquisition and technology acquisition/generation agreements
(Table 24).
Table 24. Network Strategies: Importance of participation in collaborative agreements.
Production capability
acquisition
Technology acquisition for
knowledge generation
Outsourcing 0.669 -0.445
Subcontracting 0.711 -0.380
Technical cooperation agreement 0.695 0.146
Supply agreement 0.702 0.097
Value added reseller 0.632 0.340
R&D agreement -0.111 0.744
Licensing agreement 0.327 0.720
Note: KMO measure of sampling adequacy=0.65; Bartlett's test of sphericity significant at 0.000 level; Cumulative % of variance explained is 57.26%.
Descriptive results indicate that, on the whole, involvement in collaborative agreements to acquire production
capabilities is important for at most 40% of the firms. These findings confirm the previous findings that firms are
mostly engaged in close relationships with their clients. Similar to the production capability acquisition component
of collaborative agreement participation, the importance of R&D agreement and licensing agreement within the
technology acquisition component is also rated as significant by only 40% of firms at most. These findings confirm
the previous findings, i.e. importance of sources of knowledge for developing new products were mainly pointing
to clients and in-house sources of knowledge.
4.7.2. Contribution of networks with other firms/institutions/suppliers to the activities of the company
In what contexts firms’ interactions with other organizations facilitate their activities? These may change from
finding clients to exploring export opportunities: firm activities can therefore be grouped into market-related and
technology-related areas.
75% of firms stated that such networks play an important role for finding clients and gathering information about
competitors (Table 25). On the contrary, about 50% of the firms stated that these networks are not important for
activities such as finding suppliers, accessing distribution channels, exploring export opportunities and advertising.
We also investigated how important these networks are for technology-related issues, i.e. for recruiting skilled
labour as an input to innovation, and developing new products as an output of the innovation process. 55-70 % of
firms stated that such networks play an important role for developing new products and recruiting skilled labour
(Table 25). However, one must recall clients were stated as the most important source of knowledge for
developing new products.

21
The data presented here show that networks are very important in the entrepreneurial strategies of firms and that
there are no significant differences between SW and MT sectors in this respect. Moreover, informal networks
seem to be much more important than formal, collaborative agreement-based networks.
Table 25. Contribution of networks with other firms/institutions/suppliers in market and technology-related areas
(% of firms expressing the factors as ‘important’ and ‘very important’)
SW
MT
All firms
1. Market related areas
Finding clients
66.7
40
53.3
Finding suppliers
10
23.3
16.7
Gathering information about competitors
36.7
33.31
351
Accessing distribution channels
26.7
201
23.31
Advertising and promotion
26.7
101
18.31
Exploring export opportunities
23.3
16.71
201
2. Technology related areas
Developing new products
40
301
351
Recruiting skilled labour
26.7
13.31
201
11 missing value.
Table 26. Major features of network orientation dimension of entrepreneurial orientation in machine tool and
software sectors in CEE.
EO dimension
Dimension category
Results
Synthesis
Network orientation
Reflects ability to
form networks and
accessibility to
external knowledge
through its networks
and process that
knowledge,
combining it with
internal knowledge
in order to innovate.
Participation in collaborative agreements
Production capability
acquisition
(outsourcing,
subcontracting,
supply agreement,
technical
cooperation and
value added reseller)
The involvement in collaborative
agreements to acquire production
capabilities is very or moderately
important at most for 40% of the
firms.
Networks are very
important in
entrepreneurial
strategies of firms and
there are not
significant differences
between SW and MT
in this respect.
Informal networks
seem to be much
more important than
formal collaborative
agreements based
networks.
Technology
acquisition/knowledg
e generation
(R&D/licensing
agreements)
The involvement in collaborative
agreements to acquire technology
capabilities is very or moderately
important at most for 40% of the
firms.
Contribution of networking to the activities of the
company
In market-related
areas (finding clients,
suppliers, gathering
information about
competitors,
accessing distribution
channels, exploring
export opportunities
and advertising)
Networks are important in finding
clients (for 75% of the firms) and
gathering information about
competitors (for 70%). For 50% of
the firms these networks are not
important for finding suppliers,
accessing distribution channels,
exploring export opportunities and
advertising.
In technology-related
areas (for recruiting
skilled labour as an
input to innovation
and developing new
products as an
output of the
innovation process)
Networks play important role for
developing new products (for 70%
of the firms) and recruiting skilled
labour (for 55% of the firms).

22
5. CONCLUSIONS
Our main research question is whether firms in emerging markets like CEE have all the attributes of developed EO
or whether the specific external constraints and opportunities affect their EO. The picture that emerges from our
analysis is sharply different from the dominant ‘individual – opportunity nexus’ as depicted in GEM-style of
research on entrepreneurship. Within this perspective, and in a very simplified interpretation, the individual
entrepreneur is conceptualized as a person that has grasped market opportunity and is constrained in its
realization by a variety of institutional obstacles. In contrast, our data show a combination of individual start-ups
as well as corporate spin-outs whose establishment and growth are closely interdependent with a variety of
networks or network related factors. Similar to Klepper and Sleeper (2005) and Klepper (2009) CEE firms are
spinoffs who have inherited specific knowledge from parent firms. They are either organizational spinoffs (MT) or
new start-ups (SW) but whose founders brought accumulated work experience and network capital built during
their previous career. This autonomous or corporate driven entrepreneurship is geared towards exploiting existing
knowledge based on previous experience and recognising new market opportunities. New KIEs are repositioning
themselves in terms of markets or products, but not in terms of technology. In that respect, CEE entrepreneurship
is of a cumulative and evolutionary rather than disruptive nature.
In the dominant I-O nexus perspective, the focus is on factors inhibiting firm formation and these are usually
sought in a variety of institutional factors. Indeed, the departing rationale for our research was the assumption
that there are numerous transition factors that inhibit knowledge intensive entrepreneurship, especially risk
taking. On the contrary, institutional barriers in setting up and operating a company are present but far less than
would be expected. The range of regulatory barriers for setting up and operating a company are assessed as not
important by more than 60% of the companies while corruption and discriminatory treatment of companies as
barriers are quite divided between companies.
So, institutional barriers still exist but they are weaker than expected and seem to be more firm - rather than
sector or country - specific. The major barriers are related to demand and market constraints, technology risks and
skills shortages, i.e. barriers are more developmental than institutional. Equally, finance is usually portrayed as the
major constraint to new firm formation and growth. Our data suggest that this is much less a problem in firm
formation but is more present in firm growth. The finance factor is one of the major barriers for growth of 20-40%
of firms which again suggests that demand and market constraints, technology risks and skills shortages are much
more important factors inhibiting risk-taking.
Innovation is commercially quite relevant for CEE KIEs. Around 50% of the firms have more than 50% share of
'innovative sales' during the last three years which is significantly above the EU average of 9.9% of turnover from
new or significantly improved products new to the market in 2008 (calculated based on Eurostat). SW and MT
firms are specialized suppliers firms, which largely innovate based on their in-house knowledge (own R&D) and
value chains. For only 10% of firms, external R&D is a very important source of innovation for product
development. For 90% of firms, clients are a very or moderately important source for product development. All
this points to innovativeness which is embodied in a firm’s ‘know-how’ and shared with value chain partners,
especially in MT sector. Disembodied knowledge trade is important in SW sector while protection is not embodied
in patents but largely in organisational capabilities. This mode of innovativeness of CEE KIEs becomes clearer if we
take into account how firms operate pro-actively.
Their proactiveness is realized through distinctive products and new markets which are initially developed or
thought through based on their own know-how, market networks and value chain partners. A collective nature of
their innovativeness reflects their interdependence with partners in physical or knowledge value chain. As
specialized suppliers, they are naturally oriented towards clients and suppliers. They maintain their proactiveness
through hardware renewal (technology upgrading) and management and personnel training.
CEE KIEs are not new technology based firms that grow based on commercialisation of proprietary technology.
Instead, these firms are competing on all competitive factors (novelty, quality, customization and costs) by serving
both domestic and export markets. Hence, their innovativeness is much more embodied in their overall
entrepreneurship orientation and cannot be reduced to new ‘gadget’, i.e. artefacts or disembodied knowledge
(patents). The basis of their entrepreneurship is in accumulation of firm-specific know-how and in understanding of
clients needs. In order to sustain these wide competitive advantages, KIEs (especially SW firms) rely on in-house
knowledge and alliances.
Networks are very important in entrepreneurial strategies of firms and there are no significant differences
between the two sectors in this respect. Formal collaboration agreements are important in terms of both

23
production and technological capabilities for 40% of firms. However, much important are informal networks
especially with clients, competitors, in developing new products and in recruiting skilled labour. Our research
suggest that indeed networks are quite positively important in establishing company (networks inherited from
previous employment), in new product development or innovativeness (value chain partners and market
networks), in exploring new ideas or proactiveness (value chain partners and market networks), and partly in
sustaining competitive advantages (alliances in SW). Networks are neither hindering nor positive factor in risk-
taking. This may suggest that already strong network linkages are confined to incremental and low risk projects.
This all suggests that, because of specific features of SW and MT as specialised supplier sectors, networks are their
important feature. But these networks are not improving risk taking ambition and do not generate potential
economies of scale and scope through labour pool or joint specialized services. This may be partly due to the small
size of the CEE markets and the lack of inter-country support networks.
Overall, different factors that shape EO in CEE point to the increasing importance of limited demand, small
markets, technology risk and skills as inhibiting factors to increased risk taking by entrepreneurs. The institutional
factors that fall within the realm of a structural reforms agenda or transition continue to play role but much less
when compared to ‘developmental’ factors. The major limiting factors call also for policies which focus on public
procurement, stimulation of demand, technology risk funds and for sector specific skills enhancement programs.
Policies to increase entrepreneurial orientation in knowledge intensive sectors should be embedded in their
specific market context and thus be very much sector or technology specific. This requires in-depth understanding
of the major drivers of competition in specific sectors and firm-oriented policies appropriate to open market
context.
Finally, our analysis has justified the addition of networking as an additional component of EO. Without it, the very
important networking dimension of entrepreneurship would be undermined or overlooked. Of course, our results
are limited to two sectors explored and future research should further test key stylized facts of our research.
Acknowledgements: A research that form the basis for this chapter was funded by the EU FP7 Project AEGIS –
Advancing Knowledge Intensive Entrepreneurship and Innovation for Economic Growth and Well-Being in Europe’
(project number: 225134) coordinated by Franco Malerba. The authors would like to thank Martina Hatlak, Attila
Havas, Anna Kaderabkova, Mira Lenardic, Wojciech Pander, Slavica Singer, Elżbieta Wojnicka and Richard
Woodward for data collection.
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