Universal versus contextual rationality: a case of Slovenia

2.4Inability of cooperation between companies

Distinct feature of Slovenian business system is inability of corporations to form higher forms of cooperation. When studying contractual relationships of companies, Jaklic and Hocevar (1999) concluded that customer and supplier relations in Slovenia are as a rule short term and arm’s length²⁷. Better collaboration between companies and the development of long-term relations characterised by risk and information sharing and by cooperation in marketing, finance or R&D is inhibited because of the weak financial discipline, incomplete legislation and continuous changes in business conditions. But more importantly low trust and uncooperativness are legacies of previous political and economical systems that have survived and adapted to the new market conditions.

Although high degree of internal cohesion and cooperation was characteristic for Slovenian local communities in the past, there was little collaboration outside the community or between different “valley communitys”. Powerful natural obstacles, such as mountain ranges and rivers, along with the lack of roads and other means of communication, has led to the development of small isolated and self sufficient communities, which did not cooperate with other communities in order to survive. After the Second World War “brotherhood and unity” of all Yugoslavian nations was strongly propagated, and development of infrastructure that would connect all the cities and villages was one of the priority tasks of the new regime. But that didn’t improve cooperation between the different regions of Slovenia simply because there was no need for it and it was impossible to obliterate local-patriotism of valley communities. One of stronger character traits of Slovenian people is envy and jealousy of somebody else’s success. So if one region was successful, the neighbouring regions did not increase cooperation with it in order to profit from its success, but have instead put greater pressure on their own managers and companies to improve their business results and somehow outshine the success of the first region. Economic development in Slovenia was therefore mostly result of intense competition between its regions and regional companies, and not the product of benevolent socialistic cooperation and collaboration between different people or companies. Even though most managers of socialistic Slovenian companies belonged to informal networks, had extensive contacts with each other and even negotiated about the allocation of funds and implementations of new western technologies, their companies as a whole did not cooperate between themselves and have usually operated quite independently from each other.
In the 70’s and 80’s three additional factors influenced inter-company relations and reduced the possibility of emergence of more long-term relationships, where companies would mutually trust each other and collaborate in some business functions like R&D or sales. First, political pressure had forced companies to formally integrate into conglomerates called “Composite Organizations of Associated Labour”. Around 46% of these companies consisted of smaller companies from different or unlinked activities (Kiauta et al, 1975, pg. 4). Creation of these conglomerates was solely on political basis and was not based on an examination of the economic synergies of such integrations. Because of oppressive nature of these mergers there was no real cooperation between individual units of conglomerates. There was no centralised control, which would create overall strategy for achieving the greatest possible synergies. Flow of funds between companies was usually from the successful companies to bad ones (Hocevar, Jaklic, Zaman, 1999). Since unprofitable companies were not shut down their losses were covered by the well-performing companies. Data from that period confirm that the profitable and successful companies were interested in high salaries and in the lowest possible accumulation, because the accumulation would anyway be lost within the system (Kiauta et al, 1975). This situation decreased the motivation of the well-performing companies and disabled the development of the most promising companies. This resulted in a loss of trust between individual units, which, under those conditions, was aggravated by the absence of a corporate strategy.
Second, the position of Slovenian companies on domestic market and the international trade regime had a substantial impact on inter-firm relations. Before 1989 the Yugoslav market was very protected. Even though Slovenia was the most export oriented Yugoslav republic, majority of sales were made on the domestic market. In 1990, after serious decrease of sales on Serbian market, because of boycott of Slovenian goods by the raising Serbian nationalists, Slovenian companies made around 82% of their sales on the domestic market, and only 18% was exported to other countries (ZMAR, 1992, pg. 6). Main motivation for export was to receive foreign currency that was used to import products or inputs for profitable sale on the Yugoslav market. Therefore companies were able to export their products at lower prices than on domestic market and to compensate their losses and make profits with sales of imported goods and their own products on domestic market. As the premier oligopolistic companies of protected Yugoslav economy, Slovenian companies didn’t have to work hard to be successful. Because of this, there were no incentives for stronger collaboration and joint development with domestic or foreign partners in order to improve their position on international markets. Since Slovenian companies had a dominant position on the “easy” Yugoslav market their managers thought that they did not need to collaborate in order to be successful.
Third, Yugoslav banks were institutions for giving loans, and not intermediaries in a rational sense (Ribnikar, 1989). In the past a group of dominant large banks dominated the Slovenian financial system and these banks were established by companies that were at the same time owners and borrowers. Commercial banks acted on their local (republican) territories as central banks. The National Bank of Yugoslavia was the central bank of all republican ‘central’ banks. Liquidity was high if the monetary policy was expansive enough. There was no need to examine credit capabilities of bank customers or bills as in the end everything was paid by the National Bank, which was far from being an autonomous agent (Ribnikar, 1989, p.69). The result of this system was higher and higher inflation which finished in hyperinflation at the end of the 1980’s. In sum, the previous economic system allowed companies to share their risks or transfer them to others in a very peculiar way. Risks were quite ‘democratically’ distributed throughout the system - meaning that there was always somebody outside the company to pay for the bad decisions of the managers - and there was no need to establish deeper OCR relations with partners at home or abroad.
Loss of the Yugoslav market at the beginning of the 90’s forced Slovenian companies to orient themselves toward west and to increase their export efforts. Only those companies that were in serious trouble sought powerful foreign enterprises to invest in them. Lack of trust and inability of cooperation can best be observed in a recent wave of mergers and acquisitions of prominent Slovenian companies. Since radical restructuring has negative effect on the short-run revenues and profits, managers are reluctant to authorise any major reforms or reorganizations within the company as this could shake their influence both within the company and outside of it. Acquisitions, on the other hand, have usually both short-run benefits in form of increased cash flow from the newly acquired company and long turn benefits in strengthening the company, making it more capable to resist inevitable foreign competition and making it harder for other enterprises to acquire it. Since there is still very little trust or cooperation between managements of acquiring and acquired companies most Slovenian takeovers are in fact hostile takeovers (hostile to the management). Slovenian managers take acquisition very personally, as an attack on them directly, and are determined to fight till the end, even though it is clear that merger would be beneficial for both companies. The defending managers usually try to involve local community and even politicians to participate in their defence. Acquisitions are often portrayed as a means for one region (usually central Ljubljana region) trying to conquer and subjugate another, usually marginal region.²⁸ By exercising their influence in the community and even on the national level, defending managers have as a rule managed to make an acquisition more costly and in some cases even managed to prevent it²⁹.