DRAFT Version

DRAFT Version Published in: Rammal, H. (ed) (2012) Fusion or Fracturing? Implications for International Business (electronic publication - ISBN: 978-0-9807899-2-8)

Size Matters – at Least When Dealing With Public Officials. Internationalization and Public Administration Beata Glinka, Przemysław Hensel Faculty of Management, University of Warsaw

Abstract In the following paper we present the results of the empirical study of relations between public administration and entrepreneurs in Poland. We applied qualitative methods (i.e. grounded theory) and conducted 40 interviews with employees of organizations which constitute Polish public administration. In our research we concentrate on culturally determined attitudes and beliefs of bureaucrats towards entrepreneurs. Since those attitudes and beliefs are grounded in institutions we decided to apply institutionalism as our main theoretical perspective. We point out that bureaucrats prefer to work with big companies. This attitude can be explained by relations of costs and benefits which are different for interactions with big corporations and small entrepreneurs. We claim that attitudes toward bigger companies may hinder the chances of development and internationalization of local start-ups.

Keywords Qualitative study, neoinstitutional theory, path dependence, Central and Eastern Europe, Cultural Values,

Entrepreneurship,

Business/Government

Institutional context, Multinational corporations.

Interaction

and

Relations,

Bureaucracies,

1. INTRODUCTION There is growing interest in entrepreneurship research in contextualization of entrepreneurs’ action and exploring relation between entrepreneursi (as important actors in economies) and their historical, institutional, spatial, and cultural contexts, ”as these contexts provide individuals with opportunities and set boundaries for their actions” (Gartner, 1995: 165; see also Glinka, 2008; Welter, 2011), both on national and international level. In our research we focus on institutional context (North, 1990), that defines “set of the rules”, both formal and informal, taken for granted, assumptions, that form the foundation of entrepreneurial action. As De Goey and Veluwenkamp claim “entrepreneurship can only be studied by placing the entrepreneur in the social context, in which the behavior of the entrepreneur is both cause and effect of social change. It is therefore important to study the cultural, social, political and religious aspects of entrepreneurship as well as the economic aspects. These aspects are the entrepreneur’s institutional environment” (2002: 25). We apply institutional theory, that has proven to be particularly useful and powerful in examining international related topics (see Bruton, Ahlstrom, & Li, 2010; Hoskisson, Eden, Lau, & Wright, 2000). The goal of this paper is to present the relations between public administration and business in Poland, and show in what way public servants’ attitudes and beliefs can influence the processes of internationalization of economy and entrepreneurship. We agree with Baumol, who claims that “(…) entrepreneurs and institutions have a two-way relationship: the institutions are primary determinants of entrepreneurial activity and its reward, while the entrepreneurs return the favor, doing what they can to mold the relevant institutions in way that best serve their own interests” (2010: 173), but in our paper we take mainly the first part of the relation under consideration. We examine one aspect of institutional environment - “institutions in action”: public administration employees’ attitude towards entrepreneurs who operate in Poland (both of Polish and foreign origin). In the first part of the paper we discuss the role of international entrepreneurship in local economies, especially those in Central and Eastern Europe. We present some issues connected with FDI, as well as the role of locally created enterprises. In the following part we concentrate on relations between public administration and business and point out factors shaping the quality of that relations. In the final part of the paper we present and analyze the results of the empirical research. We are interested in

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formal rules constituting institutional context, but first of all – the way in which people employed in public administration interpret those rules and work upon them.

2. GLOBAL BUSINESS AND LOCAL ECONOMIES Local economies all over the world are faced with the challenge of growth and development. That growth is stimulated both by local businesses and by foreign investments and activities of multinational companies. That means that public policy should balance and stimulate different forces of exogenous and endogenous development, and public administration employees must be prepared to deal with international issues. Foreign direct investments are one of the important drivers of the Polish economy. According to Polish Central Bank (NBP) the FDI inflow to Poland has been falling in the last couple of years. In 2009 FDI inflow was EUR 9.9 billion (i.e. 8% below 2008 result) and in 2010 total FDI net flow was EUR 6.7 billionii, 153 new projects were introducediii. The vast majority of FDI came from other European countries (EUR 6.62 bln in 2010). The total value of foreign investment in Poland is EUR 364,1 bln, that is 102.7% of Polish GDP. According to the same data source, in 2010 Polish direct investment outflows abroad was EUR 4.1 bln., most of it in Europe (EUR 3.87 bln). Total value of Polish investment abroad is EUR 135,3 bln (38,2% GDP), the value of direct investment - EUR 29 bln (21.6% of total investments). The fall of FDI inflow to Poland has been observed, but Poland is considered to be one of the most attractive countries in the region for foreign investors. This attractiveness is connected both with market conditions, labour costs and some policies introduces to support foreign investments and investors.

According to the Ernst&Young 2011 Europe Attractiveness Survey, Poland is one of the most attractive countries for foreign investors and ranks seventh in Europe in terms of number of FDI projects. PAIiZ (Polish Information and Foreign Investment Agency) is a good example of an institution through which the government offers help to foreign investors. It is an agency 2

targeted on providing information and services for foreign entities interested in expanding their business activities in Poland, one of its major aims is to increase the inflow of foreign direct investment (FDI) into Poland. Another goal is to support Polish companies that want to invest abroad, the action is focused on couple of European markets: UK, Czech Republic, Ukraine, Germany, France and Russia. It must be noted, however, that the majority of funds is spent on attracting investors, not on supporting capital outflow. Globalization of the economy means that Poland must find its place in the international exchange. Both – attract investment and support the development of local businesses and its internationalization. We must stress the fact that now there are no global players, multinational corporations of Polish origin. During the privatization process after 1989 systemic change, a lot of traditional Polish big companies has been bought by foreign investors. This, at least partly, explains why most of public support for internationalization focuses on SMEs. The support for SMEs – in the process of development, internationalization, developing knowledge and innovation – is also one of the EU priorities. Small enterprises, even those operating on a local scale, constantly compete with big, often multinational companies. The processes of globalization are removing the barriers which segmented the competitive environments of small and large firms (Etemad, 2003), in terms of everyday operation it means, that firms of all sizes share the same competitive space. In order to survive and develop under these conditions, SMEs has to gain kind of global competitiveness which allow them to attract the customers in spite of a presence of global players. More and more often SMEs decide to internationalize their action “at home by outsourcing to other firms with international coverage, or they may venture out of the home market” (Etemad & Wright, 2003). Different forms of internationalization can be employed – strategic alliances, cluster formation or collaborative networks, using foreign contractors – as well as different strategies (e.g. incremental process vs. “born globals”, Bell et al. 2003). Internationalization of European SMEs Survey (2010)iv shows that in spite of the growing popularity of more advanced form of internationalization described above, export and import are still the most

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popular ways of internationalizing business activity (25% SMEs within 27 European countries export, 29 – import). 7% of SMEs within the EU27 are involved in international technological co-operation, 7% are a subcontractor to a foreign partner and another 7% have foreign subcontractors. Only 2% of SMEs are active in foreign direct investment. The research clearly shows, that there still is a direct link between the level of internationalisation and size of the company: the larger the company, the more it tends to internationalise. Generally, entrepreneurs from smaller countries tend to involve in internationalization more often than those from bigger countries. In average, 44% of European SMEs declare any form of internationalization. Austria and four of the six large European economies (Germany, France, Italy and UK) show the lowest scores; Spain is equal to the European average, Poland a little bit higher. Greece is far above EU average, as well as Malta and Estonia. According to the survey, most of Polish entrepreneurs do not use public support in the process of internationalization. Only 3% of internationally active SMEs declared that they used financial support (23rd position of 33 countries under investigation), comparing to 47 in Austria (1st place). The same percentage of SMEs declared the utilization of non-financial support (16th position, compared with 23% in Slovenia, 1st position). Awareness of any public support programmes among Polish entrepreneurs is quite low. The authors of the report point out some internal and external barriers of the internationalization processes. As far as external barriers are concerned, the lack of capital is considered to be most important by entrepreneurs, but barriers connected with bureaucracy and lack of adequate public policies come right after it (see fig. 1.).

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Figure 1. External barriers of internationalization of Europen SMEs (source: http://ec.europa.eu/enterprise/policies/sme/marketaccess/files/internationalisation_of_european_smes_final_en.pdf) The question on what should be the priority basis of public policy (and public spendings): supporting FDI or forcing the creation, development and international expansion of local companies, remains open. 3. BUREAUCRATS AND ENTREPRENEURS – HOW PUBLIC ADMINISTRATION INFLUENCES BUSINESS WORLD The risk of unstable political, legal and economic environment constitutes one of the main barriers to foreign direct investment in Central and Eastern Europe (Carstensen & Toubal, 2004). While economic conditions influence foreign investors directly, the other risk-constituting dimensions namely political and legal instability – act through public administration agents. That’s why high quality administration that can easily accommodate changes in law and politics is of crucial importance to foreign investors. The ease of dealing with public officials is certainly not the most important factor responsible for decisions to enter a given market (cf. eagerness to invest in China

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shown by the representatives of Western companies, despite obstacles set by bureaucrats), yet it can play decisive role when two locations with other qualities similar are compared. In many countries local entrepreneurs and foreign investors complain both about public policy and about the quality of relations between the public administration and business. These two dimensions are widely recognized as a potential source of barriers also by scholars and journalists. Global Entrepreneurship Monitor (e.g. Kelley, Bosma, & Amorós, 2010), well known international studies of entrepreneurship, consider public policy one of the main framework conditions of entrepreneurship. Unfortunately Poland has been taken under consideration only a few times since the first publication in 1999. In the 2004 report our public policy was considered far below the average for the countries participating in research. Other researchv show, that entrepreneurs fully agree with that statement. In the CBOS poll of 2010, bureaucracy, as well as high taxes and labor costs and unstable law were pointed out as major obstacles for those, who run their own businesses in Polandvi. Entrepreneurs, more often than non-entrepreneurs, claim that labor cost are the main obstacle, along with bureaucracy and law. Glinka (2008) describing the results of qualitative research of small enterprises shows that their owners spontaneously declare that not only changing laws, but also relations with public administration employees are one of the main obstacle in companies’ development. Not only in Poland the public policy if often criticized. GEM research shows, that in many countries – also developed ones – there are still things to be done. The 2011 Wells Fargo/Gallup Small Business Indexvii poll shows that small-business owners in the United States are “most likely to say complying with government regulations (22%) is the most important problem facing them today”. Development of FDI and local businesses is strongly affected by institutional context: laws and “rules of the game”, as well as attitudes of those who implement those rules in public sectors.

Factors Shaping The Quality or Relation Between Public Administration and Business Quality of relations between the public administration and business is determined by several factors. Each of them constitutes a interesting research area on its own, yet having in mind the purpose of this paper we limit the study of these factors to the cursory overview.

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First, the shape of public administration is determined by path dependency (Pierson, 2000; Sydow, Schreyögg, & Koch, 2009) i.e. the history of previous regimes, experiences, choices and conflicts (resolved or not). This factor, even though its impact is not easily observable, should be considered as one of an utmost importance. It was shown with the use of World Governance Indicators that the quality of state governance in post-communist countries is considerably lower than in other states, even if controlled for usual factors such as GDP per capita etc. (Taylor, 2011). It follows that the path dependency is probably the most important factor shaping the state of public administrations in Eastern and Central Europe. Culture constitutes the second crucial factor (heavily influenced by the first one) . Social norms – both declared and followed – passed from one generation to another form the environment in which business practices – also transferred between generations – are executed. In the cultural environment of public administration three spheres could be discerned (Peters, 2001): societal culture (norms and values characteristic for the general society), political culture (attitudes towards politics as a tool for collective decision making), and administrative culture (norms, values and practices typical for organizations which constitute public administration). Third, the type of the legal system also heavily influences the state of public administration. Common law systems, characteristic for United Kingdom and other English-speaking countries is usually quoted as a source of relative flexibility of rules and laws, which allows for quicker adjustments to pressing needs of the day. The code law system, typical for continental Europe, is considered to be more rigid, yet perhaps it does not pose certain problems of coordination that are present in common law systems. Fourth, the state of public administration is at least partially determined by the availability of resources – both financial and intangible. For instance, the chances of successful introduction of e-government depend on the access to both funds needed for the financing of a complex IT structure and knowledge required to lay plans for e-government systems architecture.

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Figure 2. Factors shaping the present state of public administration.

In our perspective the cultural facet (as influenced by all other dimensions listed above) is the most interesting aspect of the study of public administration. A number of studies on values and beliefs of people employed in public administration were conducted recently (Beck Jørgensen, 2007; Beck Jørgensen & Bozeman, 2007; DeForest Molina, 2009; Kernaghan, 2000; Van Der Wal, De Graaf, & Lasthuizen, 2008; Van Der Wal & Huberts, 2008; Van Der Wal, Huberts, Van Den Heuvel, & Kolthoff, 2006; Vigoda-Gadot & Meiri, 2008). In spite of the quite impressive body of research concentrating on the role of values, no systematic inquiry on the public administration employees’ attitude towards entrepreneurs has been done yet. Here we see both possibility and need for the further study of bureaucrats’ values.

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4. METHODOLOGY AND RESEARCH SITE Theoretical considerations The main goal of our research was to study the attitudes public administration employees hold towards entrepreneurs and businesses. Those culturally determined attitudes and beliefs influence the action that bureaucrats take when dealing with business organizations and thus create a certain climate for economic activity. Since they are grounded in institutions we decided to apply institutionalism as our main theoretical perspective. Scott (2008) divides institutions into 3 main elements: the regulative pillar, the normative pillar and the cognitive pillar. The regulative pillar is connected primarily with governmental legislation (as well as international regulations) and industrial standards and agreements. These rules provide guidelines for all organizations operating on the market. The second pillar (normative) is composed of values and norms that guide behaviour. It represents models of organizational and individual behaviours that are expected or appropriate in different business (and other) situations. Institutions guide behavior by defining what is appropriate or expected in various social and commercial situations. The third pillar (cognitive) represents models of individual behaviour based on subjectively and constructed rules and meanings. All of the Scott’s categories had their place in entrepreneurship research helping to understand the context of entrepreneurial action both on local and international level. The cognitive pillar of institutional forces “is increasingly important to entrepreneurship research in terms of how societies accept entrepreneurs, inculcate values, and even create a cultural milieu whereby entrepreneurship is accepted and encouraged (Bosma, Acs, Autio, Coduras, & Levie, 2009; Harrison, 2008; Li, 2009)” (Bruton, et al., 2010: 423). North (1990) describes the economic growth as the result of the development of institutions that lowered transaction costs, and influenced entrepreneurs (who became more willing to take risk in such an environment). There are various factors contributing to that development – one of the most important is connected with public policy and public administration and its relation to business. Public administration employees are not only those, who implement laws – they also share some

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assumptions, beliefs and values. All three categories of Scott’s (2008) institutional elements – regulative, normative and cognitive – are reflected in their behavior (and thus shape the quality of relations between public world and business).

Research site The results presented here are based on 40 interviews with employees of organizations which constitute Polish public administration. The sample of organizations was diversified both spatially and systematically; we selected our sample to reflect the diversity of institution that deal with entrepreneurs and businesses. Obviously, most organizations and therefore most respondents were located in Warsaw, since most public institutions are located in that city. Yet we also questioned employees from local and regional institutions. When we encountered organizations which have their regional outposts we always tried to interview employees from outside of Warsaw. We have talked with employees of the following organizations: ministries (home affairs ministry and ministry of the economy), courts, local governments (first-tier (voivodship) and second-tier (commune)), city councils, pensions administration, social welfare administration, tax administration, regional bureaus of central government, road transport administration, fire departments, environmental protection agency, heritage protection agency, pharmaceutical monitoring agency, and education monitoring agency. In every case we have interviewed bureaucrats which personally deal with entrepreneurs and businesses. The rationale behind this choice was that we wanted to study attitudes of people which are pinpointed by entrepreneurs as a main obstacle in smooth functioning of their businesses. They are “bureaucracy” epitomized.

Research project methodology We have chosen to employ a qualitative methodology since it is best suited both to our theoretical perspective and to the nature of the problem under investigation. The study of such ephemeral phenomenon as culturally determined attitudes bureaucrats hold towards entrepreneurs and businesses can bring best results when conducted with the qualitative tools.

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Specifically, we have chosen a strategy of grounded theory as proposed by Glaser and Strauss in its original version (1967). We have followed four steps strategy: gathering data – coding – central codes development – theory development. The empirical material was gathered with the use of three techniques. First, eight illustrations depicting various situations that could be interpreted as happening on the premises of public administration or involving public officials were shown to the respondents. We have asked our interlocutors to imagine and describe a scenario that could lead to the situation shown on each illustration. Later, the respondents were asked how that situation was going to end. This part of our interviews was inspired by methodology employed by Banfield in his study of peasants of rural Italy (Banfield, 1967). In the second part of the interview we have asked 17 questions which were developed beforehand. The interviews were conducted up to the moment when we decided that the theoretical saturation (Glaser & Strauss, 1967) has been reached. On that stage of the research we used both direct, semi – structured interviews and observations (notes from the fields study were taken). All interviews had been made between June and November 2011. The shortest interview lasted 27 minutes, the longest – 2 hours. All interviews were recorded and later transcribed verbatim. Then, transcriptions were coded by each of the authors separately. We have used a method of open coding and – on several occasions – in vivo coding (Charmaz, 2006). In the next step, we have compared two lists of codes, discussed them and made a common list. Then, the empirical material was rescanned again in search for new quotes fitting the list of common codes. This procedure allowed us to discover important central codes which later served as a building blocks of our text. 5. EMPIRICAL MATERIAL Due to the conference focus, and the goal of this paper, only one part of project’s results will be described in the following section. As stated above, the primary objective of the research project was to study and describe public administration employees’ attitudes toward entrepreneurs. The research, however, brought some unexpected results.

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To our surprise, one of the important categories, in fact central codes of our research, was the respondents perception of the situation of big, especially international companies, as contrasted with small ones. Most of our questions were connected with small enterprises, as we intended, first of all, study the perception of small entrepreneurs and beliefs, stereotypes about them. Most of our respondents, however, spontaneously compared small businesses with big companies, and described some practices of international corporations. Below, we present some of the research findings, illustrated with quotations from the field. It’s so hard to be small… A large group of our interviewees seem to feel sorry for small entrepreneurs and claim that their job is really hard. “It is all so difficult for a small enterprise… If an entrepreneur work alone, He must think about everything, and that is not easy. Own business isn’t easy to run, it’s a wide range of issues. And if it’s one person, […] He must take care of everything, including taxes, including payments… […] It’s not easy at all.” (P2)viii It’s hard to run the business, but there are various reasons for creating new ventures in Poland. According to public servants two of them are prevailing and most important: the strive for profits and necessity. Entrepreneurs do strive for profits but – as public servants believe – most of them would prefer to do so within corporations or public administration system. “For sure everyone would prefer to hold a regular post, on permanent basis and make decent money and peace of mind to being an entrepreneur, when you always can lose a contract, wouldn’t they?” (P1) As compared to big enterprises, small businesses face more difficulties and barriers of growth. “High taxes, system of credits, these are the barriers, and I think that the bigger can do much more, and the smaller can do little.” (P12) In addition, they may also face unfair, or just too strong, competition.

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„[Big firms] are mores self-assured, often dishonest toward small [enterprises]. It’s uphill for small [companies]. Big ones are buying their employees. But laws are the same for everyone” (P3) “Because this is a big company, it can offer huge discounts and he [the manager of that company] can prove that this is not a dumping price. The price difference [between big and small companies] is up to 40%. […] That’s a lot. Someone that just has started in business has no chances…” (P4) And it is a kind of a vicious cycle: you do not have resources to hire people, but if you do not hire people – you will not develop your business. “It seems to me that only those who realize that they cannot do everything by themselves can grow. Those who are aware of the fact that if they cut down costs by doing books themselves, they may have problems, may not be up to date with changing laws […]” (P20) All in all, small companies not only face many difficulties, but also tend to act in an unprofessional manner. It means, that on the one hand, their situation is hard, but on the other – they are often to blame for not trying hard enough. Or for applying illegal practices. “[…] in bigger companies entrepreneurs do not use crooked ways so often, because it is much harder to hide certain things” (P24) “[…] these are small companies and individual entrepreneurs that lack knowledge about their duties, and it is the worst thing” (P25) Only a few public servants claim, that to some extent smaller is actually nicer. Small entrepreneurs are polite and easygoing, in contrary to big ones, who tend to be too self-assured. “[…] the approach is quite different, sometimes negative. Sometimes the smaller is more open, friendly, obliging, you can see that he cares and wants his business to thrive; and the bigger has more, achieved some kind of stabilization and show that he is the one who rules.” (P18) “Retailers, owners of smaller enterprises, those who has been running their businesses for a longer time…these are easier clients, it’s easier to work with them.”(P20)

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… and bigger is better, especially when foreign According to public administration employees, Poland is an increasingly business-friendly country. There are things to be done, but to some extant we create a decent environment – especially for foreign companies. Interviewer: Is Poland a friendly country for entrepreneurs? Interviewee: I think so. I am not sure if for Polish ones, but it is [friendly] for foreign [companies]. (P28) Poland – as a country – may not be entirely friendly, but what about bureaucrats? It seems that to some extent, they seem to be selectively friendly. Most of our interviewees claim, that the cooperation with big enterprises is much easier, than with small companies. “It’s easier to cooperate with big entrepreneurs than with normal people […]. They know what they want, what documents they should have with them and how to sort it out.” (P4) Numerous particular reasons are specified, that make bigger companies more professional and reliable partners. Small partners are often perceived as less informed, lacking knowledge, especially about changing regulations. “the [small] entrepreneur that does not participate in public tender procedures that often may have difficulties in sorting it out. […] It’s one thing to provide this kind of service for a private customer and it’s something very different to provide it [for public administration]. It could be a barrier to them, the need to be prepared, to adjust to regulations” (P5) „These tiny little firms, family firms are rather more honest but less informed. The middle ones […] are often less honest and they have better knowledge about its business and about legality of its functioning, so they can avoid some issues [with legal system]. And those biggest […] they have employees which fulfill their commands and if anything goes wrong it is always the line employee who is to be blamed, he will be held responsible.” (P24) Form the bureaucrats’ point of view legal knowledge is crucial. The professional attitude can be estimated on the basis of that knowledge. Big companies tend not only to know the law, but also to hire professional advisors.

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“Surely, laws are the same for everyone […] yet bigger entrepreneurs usually have bigger knowledge and act through [professional] proxies.” (P26) “Someone that runs a big business can afford to have legal services, financial services and thanks to it fares better on the market, but if someone runs a small business then […] it’s much harder for him to function.” (P21) “The cooperation with big entrepreneurs is much easier since they often use legal services. For a judge it is a completely different conversation with someone who has some knowledge and […] a professional legal proxy. […] While a small entrepreneur usually […] is not prepared for a participation in a trade contracts and has a negative attitude toward organs of public administration and also has higher expectations”(P21) “For a bigger entrepreneur it wouldn’t be a big burden [to hire a professional lawyer], […] but for smaller ones several occasions like that [when he or she needs to employ a lawyer] may indeed cause them to go bankrupt.” (P5) The difference in the quality of relations with big and small entrepreneurs lies not only in knowledge. To some of our interviewees professionalism of big enterprises stems from their more responsible and honest action. “Big entrepreneurs and small entrepreneurs… It’s easier for big entrepreneurs can run their businesses, according to the rule that . They have financial resources, they have contacts and knowledge so they run their businesses inline with the law […]. And sometimes I feel that those bigger entrepreneurs are more honest, more trustworthy, when they show some documents you can trust that they describe the actual state of things. But those small entrepreneurs cheat very often. It can be felt, that they try to hide something or declare that they will do something but they won’t.” (P25)  The big international companies, or Polish companies that managed to internationalize their action are, according to public servants, in business’ avant-garde. The companies who managed to enter international markets benefit from that in various ways – not only by increasing sales, but also competencies and growth potential.

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[…] I know companies that has entered with Western capital, Western owners. These are Western Corporation or smaller companies’ owners just from abroad. And our companies are trying harder […] It is all so related. They [foreign companies] are honest and open […], the owners just can’t imagine a different approach on their own market but honesty, integrity and sincerity in the relations with public administration, can they? (P24) […] there are couple of companies who have their branches abroad, and I see that there is a huge difference in attitude […] I can observe how they develop and how fast they do respond to market changes. (P26)

International markets can also serve as a source of good standards and best practices in business, hence influencing Polish entrepreneurs to do their best. […] we joined EU, and it also influences [action of entrepreneurs]. And people, owners of companies noticed that international cooperation is based on sincerity, creativity and specific action. So they start to, so to say, implement it to be able to exist on a market (P24) 6. FINDINGS AND DISCUSSION Our analysis of the gathered empirical material allowed us to form some hypotheses which explain why bureaucrats prefer to work with big companies. Even though some of our respondents see big enterprises as “predators” of a kind – especially if they are of a foreign origin - they still prefer to deal with them, rather than with small companies, especially newly established ones. This attitude can be explained by relations of costs and benefits which are different for interactions with big corporations and small entrepreneurs. Time costs Corporations command much bigger resources than average sized companies, not to mention small entrepreneurs. Therefore they are able to hire professionals that are qualified in dealing with public officials. These professionals are usually lawyers but also accountants and other people proficient in procedures and habits of bureaucrats. Skills and knowledge of professionals add to skills and knowledge of bureaucrats - that smoothes their interaction and makes it shorter. From the point of

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view of the public servant it equals higher efficiency. This, in turn, is of crucial importance, since performance measurement systems in the Polish public administration encompass more and more areas every year. Clearly, insistence on performance, characteristic for New Public Management (Lynn Jr., 2006; Sahlin-Andersson, 2001), results in better attitudes towards big companies -- and worse towards smaller ones. Energetic and emotional costs The professionalism of big companies’ proxies and relative incompetence of small entrepreneurs shape also in other ways the incentive structure to which bureaucrats are exposed. During our interviews public servants were constantly lamenting on the efforts they need to undertake in order to explain to “simple”, “not that well educated” small entrepreneurs how this or that form should be filled or what are the steps that should be followed in a given procedure. In other words, interactions with owners of small businesses are not just more time consuming – they also mean more energy spent and higher exhaustion in the end of a workday. More than that – and perhaps more importantly – entrepreneur’s inability to stand up to bureaucratic requirements often frustrates him or her. If he is of an older age he feels like he is back again in the bad old days of autocratic communist regime. Again he needs to deal with heartless state bureaucrats that understand nothing. Quite often this would result with rude behaviour and exchanges in heightened voices. If she is a younger person then frustration resulting from her inability to deal with procedures will cause a different chain of reactions, yet the end will be almost the same. This time she will utter some mean words about her taxes that pay bureaucrat’s living and inferior service she gets in exchange. All this puts considerable emotional costs on public servants. One of our respondents reported that during one such encounter with a disgruntled entrepreneur her hands were shaking so badly, that she was not able to call the guards or the ambulance (to help the entrepreneur who fainted after his outburst of rage). Certainly, extreme situations like one described do not happen often. Yet when they occur they shape perceptions and attitudes of a given public servant for years.

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To sum it up - the professional proxies of big companies are not just more proficient in bureaucratic “rules of the game”, they are also more predictable in their behavior and therefore less likely to impose additional emotional costs on a public servant. Political costs (and profits) Every big organization is at least partially a political system (March, 1962; March & Olsen, 1989; Mintzberg, 1983) full of conflicts, coalition building and fights for power and resources (Hensel, 2008; Pfeffer, 1994; Pfeffer & Salancik, 1978). Motivation of public servants and attitudes held by them cannot be full understood without accounting for this dimension of organized action. Here again, interactions with big enterprises bring profits that are nonexistent in relations with smaller entrepreneurs. First, professional knowledge of corporations’ representatives heightens the probability that the bureaucratic process will be realized inline with laws and procedures which govern bureaucratic space. This is beneficial to the public servant since it lowers the probability that he or she would need to engage in a “blame game” (Hood, 2011) i.e. a responsibility shifting endeavor. In other words, dealing with a big actor is safer for a bureaucrat than dealing with an owner of a small business. Yet, there is more to it than safety. Successfully finalized investment by a big local or international corporation usually means that many jobs are created in a given region. While small entrepreneurs may provide most jobs in the private sector, big corporations’ investments create many jobs at once. Hence, if analyzed in terms of jobs-to-bureaucratic-effort ratio, interactions with big investors are clearly more efficient. Big investments are also more visible which constitutes another advantage. The bureaucrats can more easily advertise their success, which in turn heightens their prestige and improves their position in dealings with other bureaucrats. Last, but not least, that kind of a visible investment also improves local politician’s chances for reelection. 7. CONCLUSIONS The problem of relations between public administration employees and entrepreneurs/businesses is very important, and often overlooked. Institutional environment of business is certainly important, yet not too often studied in its social dimension, especially in Poland – i.e. concerning people attitudes,

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beliefs and action. Our study is an attempt to fill this gap and to offer a new perspective on relations between public administration and business. As it contributes to our understanding of factors important to economy, it has both theoretical, and practical relevance (can help to improve public policies and bureaucrats’ training). In our research we show how social institutions shape bureaucrats’ perception of entrepreneurs. In other words we have focused on the cognitive pillar of institutions (Scott, 2008). Below we would like to show both possible consequences of their attitudes toward entrepreneurs - big and small - and limitations of our research project. The main finding that can be inferred from our research project is that positive attitudes toward bigger companies (ingrained in the cognitive pillar of social institutions) may hinder the chances of local start-ups in the biggest economy of Eastern Europe. Obviously, a bureaucrat is required to show the same zeal when dealing with any applicant, no matter big or small. Yet if our description of public servants’ attitudes is consistent with reality, then it is likely that their behavior would discourage small entrepreneurs from undertaking new ventures, or developing existing ones. First, every interaction with an entrepreneur means time consumed and effort made. Therefore public servants may refrain from suggesting the entrepreneur that he or she may participate in a new government program designed to help small businesses. This, in turn, may form an obstacle to internationalization of Polish businesses. On one hand, small businesses must respond to the challenges of internationalizing markets, i.e. especially – strong competition of big multinational companies; on the other hand – their own internationalizing efforts are often hindered by procedural (and human) barriers resulting from attitudes of public servants. When we combine it with the fact, that Polish economic public policy is, in general, better adjusted to help foreign investors in Poland, than to help Polish entrepreneurs which try to start businesses abroad, the clear picture emerges: only those, who are really strongly motivated to internationalize will try it. The success comes in spite of public administration rather than thanks to it. Second, public servants may unconsciously send signals that would discourage entrepreneurs from further contacts. Many a times, we have heard bureaucrats saying that “anyone can be an entrepreneur, also an uneducated person”, “you know, he has 4 classes of primary school and he is a

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great entrepreneur”, “these people are often very simple” etc. When we asked why entrepreneurs are ranked low in the hierarchy of prestige of occupations we learned from our interlocutors that entrepreneurs take risks everyday and are never sure if they will earn any money. Respondents contrasted this with their own situation: they get smaller salary but it arrives regularly at their bank accounts. No one should be surprised if these attitudes and opinions about entrepreneurs influence interactions with applicants. The bureaucrat-applicant relation is always unequal – the former being versed in procedures and administrative environment, the latter often feeling lost in something that may seem to him or her as a Kafkaesque labyrinth. Yet this lack of balance may be pushed even further by the bureaucrat’s perceptions of entrepreneurs fate – the public servant is not just more proficient with procedures, he or she also has a better job and is located higher in the social hierarchy. This way of thinking may cause twofold consequences. First, the public servant may treat an entrepreneur with a bit of contempt. These does not need to be expressed openly to be felt by the other side of the relation. Second, if the public servant is on the mission to help the poor entrepreneur whose fate is so pitiable then the entrepreneur may feel like he is being patronized by the bureaucrat. This way or another, the attitudes toward entrepreneurs may influence his or her perception of public administration and change his or her appetite for repeating this kind of encounter in the future.

Poland, the biggest - and constantly growing in spite of the global crisis – economy in the region is attractive for foreign investors and multinational companies. Most of international players are present in Poland, some of them plan to expand their activities. Public servants do not significantly limit this attractiveness – even if bureaucratic procedures are complicated, public sector employees try to cooperate with big companies and appreciate their professional attitude and competencies. It is not an overstatement to call Polish economy highly internationalized. At the same time Poland seems not to be so attractive for local small business owners that want to develop their enterprises (and often – internationalize them). World Bank’s research (DoingBusiness, 2010) clearly shows, that the conditions for startups need to be further improved – Poland ranks 62 among the world countries (126 for starting business and 46 for protecting investors)ix. Obviously,

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since SMEs significantly contribute to economic growth Polish government established numerous programs which promote self-employment and introduce financial support for starting businessx. Also, some EU policies and programs favor SMEs. Yet, in the end of the day the success of these programs depends on the front-line bureaucrats’ eagerness to work with entrepreneurs. Due to limited resources and sometimes inferior competences, small businesses are not as professional partners for public administration as big companies. It deepens existing inequality of chances for winning in the market game: both on local and international scale. Limitations and further research Our study is surely imperfect. Firstly, all the usual limitations of qualitative studies should be considered. The small number of respondents – 40 employees selected from a population 437 000 people strong - hardly constitutes a representative sample. Secondly, huge scope of the Polish public administration made it impossible for us to talk with employees of all its various departments and agencies. However, what we have aimed for was a qualitative description that will serve as a basis for further quantitative study. We tried to uncover salient issues rather than prove hypotheses therefore unrepresentativeness of the sample does not constitute a problem to us. Thirdly, the interview technique of data acquisition is very prone to interviewer bias and no matter how hard we tried not to influence our respondents we are certain that some influence did occur. Further research, we believe, should deepen the understanding of the relation between company size and administrative support that a company can obtain from public servants. Particularly, the question of relation between the “bureaucratic culture” and internationalization of SMEs should be addressed. Our research shows, that beliefs and attitudes of public servants may limit international activity of local enterprises, but the problem of specific form and scale of that phenomenon needs more systematic consideration. REFERENCES

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Endnotes i

In the literature we can find numerous definition of “entrepreneur” and “entrepreneurship”, most of them concentrate on the role of opportunity identification and distinguish entrepreneurs from small business owners. In our text we decided to use the term “entrepreneur” in a different way, following Polish regulations (Civil Code), i.e. for the purpose of our analysis we define entrepreneurs as those who create and run businesses. This choice is also influenced by the fact, that our interviewees often used a label “entrepreneur” to describe business owners. ii The detailed structure of FDI is described in the following document: http://www.nbp.pl/publikacje/zib/zib2010.pdf iii http://www.paiz.gov.pl/20110615/raport_ernst_young iv http://ec.europa.eu/enterprise/policies/sme/marketaccess/files/internationalisation_of_european_smes_final_en.pdf v For example reports published by PARP – Polish Agency for Enterprise Development (www.parp.gov.pl). vi http://www.cbos.pl/SPISKOM.POL/2010/K_158_10.PDF vii http://www.gallup.com/poll/150287/Gov-Regulations-Top-Small-Business-Owners-ProblemList.aspx?version=android&utm_source=android&utm_medium=app&utm_campaign=syndication

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viii

All the quotations are taken from interviews and translated. We use symbols (P1 – P40) instead of real names. For details see: http://www.doingbusiness.org/reports/global-reports/doing-business-2011/ x Some scholars suggest that it is important to distinguish between self-employment policy and entreprenership policy (Henrekson, Stenkula 2010), the latter being considered as better supporting economic development. The most popular programs in Poland seem to be concentrated on new venture creation, even if they also evaluate innovative potential of a venture. ix

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