The Role Of The Entrepreneurial Logic In Export Performance. The Case Of Entrepreneurs In Transition Economies

TESIS DOCTORAL THE ROLE OF THE ENTREPRENEURIAL LOGIC IN EXPORT PERFORMANCE. THE CASE OF ENTREPRENEURS IN TRANSITION ECONOMIES. Salomat Yuldasheva ESCUELA DE DOCTORADO INTERNACIONAL PROGRAMA DE DOCTORADO EN DESARROLLO REGIONAL E INTEGRACIÓN ECONOMICA SANTIAGO DE COMPOSTELA 2017 DECLARACIÓN DEL AUTOR DE LA TESIS The Role Of The Entrepreneurial Logic In Export Performance. The Case Of Entrepreneurs In Transition Economies. D./Dña. Salomat Yuldasheva Presento mi tesis, siguiendo el procedimiento adecuado al Reglamento, y declaro que: 1) La tesis abarca los resultados de la elaboración de mi trabajo. 2) En su caso, en la tesis se hace referencia a las colaboraciones que tuvo este trabajo. 3) La tesis es la versión definitiva presentada para su defensa y coincide con la versión enviada en formato electrónico. 4) Confirmo que la tesis no incurre en ningún tipo de plagio de otros autores ni de trabajos presentados por mí para la obtención de otros títulos. En Santiago de Compostela , 25 de Septiembre de 2017 Fdo. ........... AUTORIZACIÓN DEL DIRECTOR / TUTOR DE LA TESIS The Role Of The Entrepreneurial Logic In Export Performance. The Case Of Entrepreneurs In Transition Economies. D. Manuel Fernandez-Grela, profesor del departamento de Fundamentos del Análisis Económico. INFORMA Que la presente tesis, corresponde con el trabajo realizado por Dña. Salomat Yuldasheva , bajo mi dirección, y a utorizo su presentación , considerando que reúne l os r equisitos exigidos en el R eglamento de Estudios de Doctorado de la USC, y que como director de ésta no incurre en las causas de abstención establecidas en Ley 40/2015. En Santiago de Compostela, 25 de Septiembre de 2017 Fdo. ........... The Role Of The Entrepreneurial Logic In Export Performance 7 Acknowledgements Firstly, I would like to express my sincere gratitude to my supervisor, my teacher Prof. Manuel Fernandez-Grela for the continuous support of my Ph.D study and related research, for his patience, motivation, and immense knowledge. He has been supportive since the days I began working in his team. I remember how he accepted me to his team during the time when I was hopeless for continuing my stay in Spain. His guidance helped me in all the time of researching and writing of thesis and in other of my tasks. I could not have imagined having a better advisor and mentor for my Ph.D study. Thank you Manuel! A special thanks to Yolanda for sharing with her knowledge and for her unlimited patience in teaching me on methodological part of my work. I am very thankful for her support in my life outside the studies. Thank you for the world for having a people like you! I would also like to thank Nataly for being a friend, a consultant, a teacher and for being a good researcher in general. Thank you my dear for your honest opinions and real contributions to the development of my mind as a researcher. I would like to thank a coordinator of this doctoral program, Prof. Melchor Fernandez - Fernandez for his availability in solving any issues and his continuous support on presentations and throughout the period of my doctoral study. I am impressed by your open personality, friendliness, willingness to help while you have many other urgent issues at the same time. I am fascinated by people like you! Agradezco muchísimo a Esperanza por salvarme mi vida! Yo valoro todo lo que tu hicise pro mi! Adoro tu personalidad. Debo agradecer de manera especial y sincera a Loli y Maribel el haberme facilitado siempre los medios suficientes para llevar a cabo todas las actividades propuestas no solo durante mi estancia en España. Salomat Yuldasheva 8 Quiero expresar también mi más sincero agradecimiento a los miembros de mi familia en IDEGA, específicamente a Alba, Akmaral, Maria, Harold, Fernando y otros. Sin vosotros mi vida aquí seria muy aburrida, sin sentido y muy vacía. Gracias por estar aquí conmigo! Estoy muy agradecida a todos los españoles por su muy buena hospitalidad, la sonrisa en su rostro, sus ganas de ayudar. Agradezco a mis vecinas Rosa, Monica y otras personas que me apoyaron cuando me encontré con cualquier problema que se resolviera. Estoy muy agradecida a mis amigos Juan, Monica y Laura. Sin vosotros mi estancia en España no sería tan clara. Juan y Mónica porque tú y toda tu familia estuvieron aquí a mi alrededor, no sentí ninguna preocupación en ningún caso, porque estaba segura de tener a mi familia a mi alrededor. Gracias por darme esta sensación de confianza! Special Thanks to my friends Dildora and her husband Dilshod for meeting me and my family here in Santiago. Thanks to you both, from the first minutes in Santiago I felt this warmth and love towards this beautiful city. Special Thanks to Mohbonu for her huge support during my hard times. Thank you dear for being with me! Muchas gracias a mis amigos Shahana y Djahangir, porque sois mi familia ahora! Gracias por tener un hijo tan dulce que me hace sonreír y sentir feliz cada día! Muchas gracias a mi amor - mi hija Samira. Te escribo en español porque sé que esta lengua es la más cercana a tu corazón ahora después de vivir aquí por tanto tiempo y de tener tantos amigos de aquí. Aprecio tu paciencia indispensable durante mis tiempos de trabajo duro. Gracias por prepararme el té y el café en mis tiempos de investigación más intensos, gracias por estar a mi lado en todos los casos posibles en nuestra vida. ¡Te Amo! I say big thanks for my father, for being a helping hand, a guide, a supporter and a great father! Thank you for gathering the survey data for me from the entrepreneurs in Uzbekistan and for organizing the data collection process with your colleagues. Without your direct contribution to my data collection process this research would not exist yet. At the same time The Role Of The Entrepreneurial Logic In Export Performance 9 thank you Mom and Dad for your love, emotional support and also for your financial support throughout of my life! Shu erda minnatdorchilik bildirish imkoniyatidan foydalanib mening sevimli dadajonim va onajonimga kattakon rahmat aytaman! Yahshiyam sizlar bahtimga borsizlar, va yahshiyam sizlar aynan shunday insonsizlar. Shu doktorlik dissertaciyamning bor bo´lishining asosiy sababchilari sizlarsizlar! Va umuman meni shunday inson bo´lib etishishimning asosiy avtorlari sizlardir. Qadrli dadajonim va quyoshdek mehrini doim sochib turgan opajonim, sizlarga mingdan ming RAHMAT! Shuningdek mening yagona erkatoy ukam Fahriddinga uzimni minnatdorchiligimni bildiraman! Hamma kompyuterlarimning haqiqiy ustasi, mening doimiy yordamchim va judayam sevimli ukajonim, sen borliging uchun Allohga Shukur! I cannot fully express with words my great feeling of praise to the city Santiago de Compostela. O´ Santiago, I love you very much! Thank you for accepting me with your fresh air, cozy streets, good people and your special spirit! May be for some people it may sound unbelievable but it is true - I Love Your Rains! Salomat Yuldasheva 27. 09. 2017 Santiago de Compostela. Salomat Yuldasheva 16 List Of Figures Paper 1 Figure1: Contrasting the processes of causation and effectuation (Adapted from Sarasvathy, 2007; 30) ............................................................................................ 60 Figure 2: Characteristics of Effectual Problem Space and Transition Economy .................. 62 Figure 3: Structural Changes in the Uzbek Economy over the Last 20 Years. GDP structure ................................................................................................................. 72 Figure 4: Poverty and GDP per capital ................................................................................. 73 Figure 5 Tax reform is making life easier among firms surveyed in both years ................. 80 Figure 6: Bank Lending......................................................................................................... 88 Figure 7: How Uzbekistan and comparator economies rank on the ease of doing business .................................................................................................................. 94 Paper 2 Figure 1: The Components of a Transition Specific Uncertainty ....................................... 128 Figure 2: Chane in 1% of MSME size, per 1% increase in the level of certainty ............... 148 Figure 3: Changes in the environment ................................................................................ 150 Paper 3 Figure 1: The Conceptual Framework of the study ............................................................ 201 Figure 2: Entrepreneursial Experiences towards Effectuation vs. Causation ..................... 206 Figure 3: Path coefficients for the effect of Entrepreneurial Characteristics on Entrepreneurial logic ........................................................................................... 207 Figure 4: Path coefficients for older and younger entrepreneurs ........................................ 210 Figure 5: Path coefficients for Produced Products Exporters and Raw Materials Exporters .............................................................................................................. 212 Figure 6 Path coefficients for bigger and smaller companies ............................................ 214 Figure 7: Path coefficients for companies that sell to Consumers and that sell to Industries.............................................................................................................. 216 Figure 8. Path coefficients for companies with bigger share of export sales and smaller share of export sales ................................................................................ 217 Figure 9: Path coefficients for different types of export countries ..................................... 219 The Role Of The Entrepreneurial Logic In Export Performance 17 Figure 10: Theoretical Framework ........................................................................................ 221 Figure 11: Responds related to the Causation construct ....................................................... 222 Figure 12: PCA for the Export Performance construct ......................................................... 224 Figure 13: Distribution of manifest variables of Effectuation .............................................. 226 Figure 14: Distribution of manifest variables of PEU. The graphs show the perceived .............................................................................................................. 228 Figure 15: The main structural model ................................................................................... 230 Figure 16: Formative and Reflective Constructs................................................................... 231 Figure 17: Inner model .......................................................................................................... 232 Figure 18: Outer model ......................................................................................................... 232 Figure 19: Path coefficients................................................................................................... 233 Figure 20: Loadings for reflective constructs ....................................................................... 236 Figure 21: Path Coefficients .................................................................................................. 239 Figure 22: Path Coefficients .................................................................................................. 244 Figure 23: Path Coefficients without indicator ‘affordable loss’ .......................................... 245 Figure 24: Perception of Uncertainties.................................................................................. 251 Figure 25: Global path coefficients ...................................................................................... 252 Figure 26: Interaction paths 1................................................................................................ 253 Figure 27: Interactions Paths 2 .............................................................................................. 254 The Role Of The Entrepreneurial Logic In Export Performance 19 Resumo Galego Esta tese de doutoramento no campo do emprendemento consiste en tres artigos individuais. As análises dos tres artigos fíxose dende a perspectiva da teoría da efectuación. Teoría da efectuación En Sarasvathy (2001), avánzase unha teoría nova, a "teoría da efectuación", que afirma que a mente emprendedora utiliza dous modos diferentes: a efectuación e a causación. Dacordo con esta autora o enfoque efectual substitúe a lóxica empresarial de predición por unha de control. Afirma que a efectuación é máis utilizada por emprendedores expertos que teñen experiencia empresarial, mentres que a causación utilízase principalmente por emprendedores novéis, ou por xestores de grandes organizacións que dispoñen dunha formación de base en administración de empresas (Dew et al. 2009). A causación enfoca os problemas co fin en mente, ca formulación dun obxectivo específico e ca recolla dos recursos e capacidades relacionados ca consecución dese obxectivo. A lóxica causal predice o escenario óptimo. Isto contrasta ca lóxica efectual, que intenta "controlar" o futuro en troques de "predicilo", facendo uso dos recursos dispoñibéis mentres trata de obter os mellores resultados. A teoría da efectuación afirma que o emprendedor avalía as alternativas, en particular a elección de socios estratéxicos, en relación ao seu potencial de éxito futuro. Os obxectivos adáptanse ás eleccións e, en particular, ás necesidades dos socios estratéxicos (Schluter et al.2011). Nun proceso de decisión causal, é necesario procesar unha cantidade significativa de información para planificar o futuro ou para desenvolver futuros escenarios. Polo contrario, a lóxica da efectuación ten como punto de partida a análise dos recursos dispoñíbeis. O emprendedor segue or ritmo da recollida de información, ou mesmo adiántase a ela. O Salomat Yuldasheva 20 obxectivo modíficase continuamente dacordo ca información recollida e ca xente ca que se interactúa, expandindo así os recursos dispoñíbeis e creando un novo artefacto imprevisto. A teoría da efectuación (Sarasvathy 2001) céntrase na toma de decisións en condicións de elevada incerteza cando o futuro non pode predicirse mediante inferencia estatística. Nesas condicións, os emprendedores, xestores ou políticos poden desenvolver oportunidades baseadas nos medios dispoñíbeis seguindo o principio de perda aceptábel, en troques do de maximización do rendemento esperado. Poden así crear novas iniciativas e economías non baseadas nunha estratexia estrictamente planeadas, senón resultantes da interacción deses axentes ca súa rede político-social (Kalinic et al., 2014). Ademáis, Sarasvathy (2003) propón un termo especial: "espazo efectual de problemas" para describir os entornos empresariais incertos. Afirma que unha elevada incerteza knightiana, xunto ca ambiguidade de obxectivos e a isotropía do entorno, constitúen o espazo efectual de problemas (Sarasvathy et al. 2008). A ambiguidade de obxectivos refírese á existencia dun só obxectivo xeral, pero con resultados que non están dados, nin ben ordeados, nin traducidos a sub-obxectivos/plans de acción específicos. É máis probábel que o emprendedor teña unha ambición vaga, xeral, final (visión), que poida ser refinada e mesmo completamente transformada mediante a interacción con outra xente e co entorno. En canto a isotropía, indica que non está claro qué elementos do entorno poden ser úteis. Neste tipo de entornos, o proceso de recollida de información é difícil e non pode prepararse do xeito tradicional, xa que sería difícil coñecer a qué información prestar atención, e cal ignorar. Dacordo con Sarasvathy, o espazo efectual de problemas obriga a tomar decisións efectuais para conseguir mellores resultados cando existe un elevado nivel de incerteza. O obxectivo desta tese é estudiar o concepto de efectuación ao examinar as decisións emprendedoras tomadas nun entorno empresarial altamente incerto nunha economía en transición, usando o caso dos emprendedores en Uzbekistán. No entorno empresarial incerto das economías en transición é habitualmente inútil ou simplemente imposíbel facer predicións, e polo tanto as estratexias empresariais clásicas baseadas na predición non teñen sentido para os emprendedores que operan nesas economías. The Role Of The Entrepreneurial Logic In Export Performance 21 Xa que a teoría da efectuación considérase como unha teoría comportamentista da transformación (Dew et.al., 2008) é altamente relevante para as economías en transición. O aspecto transformador nestas economías refírese as transformacións nas institucións, os mercados e as empresas no seu conxunto, porque nestas economías o proceso de cómo as institucións crean emprendedores e cómo os emprendedores crean mercados e os mercados crean novos emprendedores. Capítulo 1 Este capítulo dedícase a unha discusión teórica do concepto de incerteza baixo o enfoque da teoría da efectuación e a teoría institucional. O principal obxectivo deste capítulo é o de escudriñar teóricamente as condicións do espazo efectual de problemas descrito pola teoría da efectuación e comparalo co entorno empresarial creado nas economías en transición nos países de Asia Central. En particular, a atención céntrase principalmente no entorno institucional de Uzbekistán. A análise revelou que o entorno altamente incerto descrito polo término espazo efectual de problemas comparte as mesmas características dun entorno empresarial nunha economía en transición. Esta discusión da incerteza orixinada polas características institucionais e as regulacións públicas a través do enfoque da teoría da efectuación, e a primeira na literatura, e é a contribución deste capítulo, que abre un novo espazo de discusión dentro da teoría da efectuación ao propoñer ás economías en transición como unha realización empírica do espazo efectual de problemas ideal que combina elevada incerteza knightiana con ambiguidade de obxectivos e isotropía do entorno. Capítulo 2 Observamos que mentres os emprendedores enfrontan retos altamente incertos, os países con economías en transición conseguiron un crecemento enorme na súa porción de pequenas e medianas empresas (PEMEs). Polo tanto, no segundo capítulo investígase o efecto da incerteza na porción de PEMEs no conxunto do tecido empresarial. Supoñendo que a Salomat Yuldasheva 22 incerteza leva aos emprendedores a cambiar a lóxica emprendedora a unha lóxica efectual para evitar o fracaso empresarial, propuxemos que non existen efectos significativos do nivel de incerteza no entorno sobre a porción de PEMEs no número total de empresas dun país. Este capítulo presenta dous obxectivos principales. Para ver a relación entre a incerteza no entorno e o tamaño do sector PEMEs foi necesario comparar varios países con economías en transición cun conxunto de países máis desenvolvidos. Nunha primeira etapa, adoptouse unha medida da incerteza no entorno. A incerteza específica en economías en transición proposta por Susjan e Redek (2008) xorde de tres fontes principáis: o legado do sistema socialista, a inestabilidade social e política e as transformacións sistémicas. Adaptamos este índice de incerteza tendo en consideración factores específicos relacionados cas economías en transición dos países que formaban parte da antiga Unión Soviética, e dos países deste tipo situados en Asia Central en concreto. Por exemplo, os niveis de intervención gubernamental e corrupción nestes países son aínda moi elevados, polo que a ponderación deses compoñentes no noso índice é maior, para reflectir o seu impacto sobre as actividades cotiás dos emprendedores. Por outra parte, non incluimos a dimensión referente á medida das regulacións laborais, xa que este aspecto atópase baixo revisión pola Organización Internacional do Traballo (por exemplo, debido á ausencia de salarios mínimos nalgúns país con resultados moi elevados nesta medida particular). Na segunda etapa preparouse un panel de datos agregados con información sobre microempresas, pequenas empresas e medianas empresas na economía de cada país, tomados da International Finance Corporation (IFC), pertencente ao Grupo do Banco Mundial. A base de datos contén un conxunto desequilibrado de datos para diferentes países. Para obter resultados máis robustos utilizáronse os datos do período 2000-2008. Como medida do tamaño do sector PEMEs tomouse a porción do emprego total creada por PEMEs. Na terceira etapa clasificáronse os países en varios grupos. O tamaño da mostra é de 53 países que presentan a información necesaria para o periodo considerado (477 observacións). Os estudios previos sobre o efecto da incerteza ou do entorno intentaban comparar tódolos países simultáneamente, sin ter en conta ningunha característica específica de rexións, países, ou mesmo grupos de países (p. ex.: Rocha, 2012; West e Drnevich, 2010; Ghosal e Ye, 2015). The Role Of The Entrepreneurial Logic In Export Performance 23 Deste xeito ignórase o feito de que o sector das PEMEs nas economías en transición e aínda novo e, polo tanto, máis pequeno comparado cos presentes en economías desenvolvidas, e non necesariamente debido ao impacto do entorno. O noso estudo ten en conta a qué tipo de economía pertence cada país, clasificados en economías no en transición, economías en transición, e distinguindo nestas distintos tipos de transición. A cuarta etapa é unha revisión da literatura, para atopar qué outros factores considéranse que contribúen ao tamaño do sector PEMEs ademais do nivel de incerteza, que deberían utilizarse como controis. Na quinta etapa estimouse o modelo utilizando o método de mínimos cadrados ordinarios (MCO) separadamente para seis grupos diferentes de países: desenvolvidos, emerxentes, en transición, países do Leste de Europa en transición, países pertencentes á antiga Unión Soviética en transición, e países de Asia Central pertencentes á antiga Unión Soviética. Tamén se utilizou o método de mínimos cadrados con variables ficticias (MCVF) para o conxunto de tódolos países. Na sexta etapa realizaronse estimacións de modelos de datos de panel, en concreto utilizando efectos fixos e efectos aleatorios, realizando o contraste de Hausman. Os resultados deste contraste indican que o modelo de efectos aleatorios é o máis axeitado para traballar con esta mostra no modelo con variables de control, mentres que o modelo de efectos fixos sería o máis axeitado para unha regresión sen variables de control. Na séptima etapa estimouse un modelo de efectos mixtos en dúas etapas. Este é un enfoque máis sofisticado que permite incorporar características individuais das variaciones temporais nun único modelo, estimando simultáneamente curvas para países individuais e unha curva promedio para o conxunto da mostra (Goldstein, 2010). Os efectos mixtos consisten en efectos fixos (ou sexa, valores promedio para os parámetros da mostra completa) e tamén efectos aleatorios que son diferentes para cada grupo ou mesmo para cada país. O modelo de efectos mixtos utilízase habitualmente cando os datos agrúpanse dalgún xeito, como sucede no noso caso. Salomat Yuldasheva 24 O modelo de efectos mixtos inclúe tanto efectos fixos, medidos polas estimacións de mínimos cadrados ordinarios e efectos aleatorios. Na parte fixa da estimación identificouse unha relación positiva entre o nivel de certeza e o tamaño do sector PEMEs. Con todo, esta relación non é significatia estatísticamente, debido a existencia de diferencias individuais entre países. As estimacións dos efectos aleatorios por grupos de países e para países individuais confirmou que a relación entre a incerteza e o tamaño do sector PEMEs é diferente para diferentes grupos de países. Moitos países desenvolvidos experimentaron unha redución no tamaño do seu sector PEMEs, ao tempo que encabezaban os rankings nas dimensións de liberdade empresarial e política medidas polo índice de incerteza. Polo contrario, o elevado nivel de incerteza non afectou ao crecemento do tamaño do sector PEMEs noutros países con economías en transición. En particular, nos países en transición pode observarse que o crecemento da porción de PEMEs no reconto total de empresas é maís rápido que a mellora que experimentan no seu entorno cara un entorno menos incerto. Estes resultados permiten concluir que o efecto da incerteza ambiental no tamaño do sector PEMEs non é un efecto robusto, e polo tanto podemos dicir que o nivel de incerteza non determina o tamaño do sector PEMEs dun país. Este achádego e importante e o enfoque de investigacións futuras debería centrarse non na potencial existencia de efectos derivados da incerteza, senón en determinar qué tipo de empresas medran mellor en entornos altamente incertos e cómo a incerteza ambiental impacta sobre a calidade e as estratexias das PEMEs. Adicionalmente, deberían realizarse investigacións adicionais para identificar os factores que proporcionan oportunidades atractivas para que os emprendedores creen empresas nos entornos altamente incertos das economías en transición. Capítulo 3 Neste capítulo utilizamos a teoría da efectuación (Sarasvathy, 2001) para investiga-lo efecto dao tipo de lóxica emprendedora, causal ou efectual, no rendemento exportador das empresas de Uzbekistán. The Role Of The Entrepreneurial Logic In Export Performance 25 Uzbekistán é un país de Asia Central cunha economía en transición, e o punto de partida da análise é que a lóxica efectual é a única plausíbel para os emprendedores deste país que busquen un exitoso desempeño exportador. A partir da revisión da literatura prantéxanse as seguintes hipóteses: H 1: Non existen impactos dos niveis de experiencia emprendedora, internacional ou internacionalizadora, nen do nivel de educación na elección da lóxica efectual fronte á lóxica causal no caso dos emprendedores exportadores de Uzbekistán. H2: A relación entre a lóxica efectual e o rendemento exportador é positiva para as PEMEs exportadoras en Uzbekistán. H3: A relación entre a lóxica causal e o rendemento exportador é positiva para as PEMEs exportadoras en Uzbekistán. H4: A relación positivia entre a lóxica efectual e o rendemento exportador é máis intensa cando as incertezas ambientais percibidas son maiores. A análise de datos realizouse utilizando mínimos cadrados parciais (MCP), unha técnica de modelización de ecuacións estruturais que utiliza un enfoque baseado na análise de compoñentes principais (Chin 19989. Aplicouse a modelización de sendas por mínimos cadrados parciais (MS-MCP) na linguaxe de programación estatística R (Sánchez, 2013) para contrasta-las hipóteses. As rutinas dispoñibéis na linguaxe R permiten utilizar variables moderadoras e implementar tanto escalas reflectivas como formativas. Ademais, MS-MCP non impón ningún suposto sobre a distribución dos datos. A avaliación de datos fíxose utilizando tres diferentes modelos MS-MCP, seleccionando o máis axeitado para este caso específico: Modelo 1. Tódolos resultados dentro do modelo interno do diagrama MCP foron satisfactorios e significativos. O efecto da efectuación sobre o rendemento exportador foi positivo e moito maior que o efecto da causación, e estatísticamente significativo. No modelo externo (referido á medición das variabéis latentes) , as variables Efectuación e Incertezas Ambientais Percibidas (IAP) presentaron signos negativos nalgúns dos seus indicadores. Salomat Yuldasheva 32 sized enterprises (MSME). Therefore in the second chapter we aimed to investigate the effect of an uncertainty on the share of MSME’s. Since we presume that uncertainty makes the entrepreneurs to change the entrepreneurial logic to effectual instead of failing the business, we proposed that there is no effect of the level of environmental uncertainty on the share of MSMEs in the countries and the results confirmed our hypotheses. In this study we focused on two main goals: First, to determine the relationship between environmental uncertainty and the (relative) size of the MSME sector. Second, to study whether there is a difference in this relationship between transition economies and other developed economies. The previous studies that focused on the effect of uncertainty or the effect of the environment attempted to compare all the countries at once without taking into account any specific characteristics of regions, countries or even groups of countries (see for example: Rocha, 2012; West & Drnevich, 2010; Ghosal & Ye, 2015). This has led to ignore the fact that the MSME sector in transition economies is still new and therefore they have less share by MSMEs comparing to the one in developed economies and not necessarily due to the impact of environment. Our study has taken into account which type of economy belongs to each country. Moreover, in this chapter we measured the levels of transition uncertainty, by adapting the measure of uncertainty created by Susjan & Redek (2008). Transition-specific uncertainty stems from three main sources: legacies of the socialist system, political and social instability, institutional and systemic transformation. We have adapted this Uncertainty index taking into consideration specific factors related to Former Soviet transition economies and specifically Central Asian countries. For example, the government intervention and corruption factors in these countries are still very high therefore the weight for these components given in our index is highest due to its impact on everyday activities of entrepreneurs. On the other hand a measurement of the labour regulation is not included since this aspect is under revision by the International Organization (e.g. the issue of the absence of minimum wages in some high performing countries). Additionally, we thought that it is more correct to utilise a method for analysis which would take into consideration unobserved differences of individual countries and group of countries, since the effect of uncertainty could not be the unique factor that might effect on the MSME The Role Of The Entrepreneurial Logic In Export Performance 33 sector size. With the panel data of 53 countries we utilised a Mixed effects regression which was found as a more sophisticated approach that can incorporate individual/group characteristics in a single model, which simultaneously estimates individual/group curves and a sample average curve (Goldstein, 2010) while conventional general regression provides a single equation or growth curve for an entire sample and does not consider differences in change between individuals or groups. The discussion of an effectual problem space in Uzbekistan and the discovery of insignificant effect of an uncertainty on the growth of MSME’s in different countries provided a background for our principal question which was investigated in the third chapter. In this we studied whether entrepreneurs use effectual or causal logics and how this effects on their performance. Several previous studies have already covered the effect of the effectual versus causal logic on business performances. (Mthantia & Urban, 2015; Klessens, 2012; Schl¨uter1, et al., 2011; Read, et al., 2010; Rust, 2010; DeTienne & Chandler, 2010; Garronne, et al., 2010; Read et al., 2009. ) Instead we identified there was a research gap towards the investigation of the use of effectuation in the export type of internationalisation, in terms of its effects on export performance. We provided detailed review of a prior research that focused on the effectuation vs. causation logics within the internationalisation process of firms in the literature review part of a chapter 3. According to the review of this literature several general assumptions can be made. First of all, all the studies except one, employed case study approach in their paper. Second, all the studies confirmed that effectuation logic is useful in the internationalisation process and that all the companies in the studies relied primarily on their available resources and networks in their internationalisation process. Third, it is possible to perform an unplanned high level of international commitment in an unknown market and unexpectedly accelerate the internationalization process despite limited international experience and lack of an international network (Kalinic, et. al., 2013). A planned approach to internationalisation is not possible for several reasons, namely the lack of firm resources such as capital and human resources as well as the lack of previous international experience, and therefore knowledge and networks for internationalisation (Lazaris, 2014). (For more assumptions please visit chapter 3 of this thesis). The authors could not locate the investigation about the role of Salomat Yuldasheva 34 effectuation in export performance and moreover in exporting from the transition economies therefore it was the focus of this study. As well as we studied the effect of perceived environmental uncertainties on the relationship between the effectuation and export performance. Additionally we proposed that the entrepreneurs in Uzbekistan mainly use effectual logic and the level of formal education and previous entrepreneurial experiences do not have importance on the selection of Effectual logic contrary to what has been stated by the owners of the Effectuation theory. Data analysis was performed using Partial Least Squares (PLS), a structural equation modeling technique that uses a principal-component-based estimation approach (Chin, 1998). We applied partial least squares path modeling (PLS-PM) in R program (Sanchez, 2013) to test the hypotheses. The R program allows the use of moderators and the implementation of both reflective and formative scales (Sanchez, 2013). PLS-PM doesn't impose any distributional assumptions on the data. While analyzing the data we had to evaluate it by using three PLS-PM different models and select the best suited for this specific case: Model 1. All the results within an inner model of PLS diagram have been satisfactory and significant. The effect of Effectuation to Export Performance was positive, much higher than effect of Causation and it was statistically significant. While in the outer model (measurement of latent variables), the Effectuation and Perceived Environmental Uncertainties (PEU) variables had negatives signs in some of their indicators. These are usually the result of the pattern of correlations among the formatively measured construct indicators. This fact may question the nature of the formatively measured construct whereas structural predictive capability of the formatively measured construct is not threatened by collinearity (Cenfetelli & Bassellier, 2009). Even so, we wanted to implement some more steps to improve our measurement scale. Model 2. One of the methods is the model where only one indicator from each dimension of Effectuation and PEU is kept and linked to directly Effectuation and PEU constructs The Role Of The Entrepreneurial Logic In Export Performance 35 respectively. In doing so we would avoid the correlations between the formatively measured indicators. The results of a structural part of a model was very similar to the ones in the model 1 and this proved one more time the notion that PLS structural model estimates hardly alter after performing an elimination of insignificant or highly collinear formative indicators, providing further support for the decision to retain such indicators in the PLS path model (Henseler et al., 2009). In the case of multicollinearity, indicator weight estimates can be distorted. This fact requires being particularly cautious when interpreting indicator weights as a sign of indicator importance (Henseler et al., 2009). According to Jarvis et al. (2003) the researcher should keep both significant and insignificant formative indicators in the measurement model as long as this is conceptually justified. Formative indicators should never be discarded simply on the basis of statistical outcomes. Such actions may substantially change the content of the formative index (Jarvis et al., 2003). Keeping in mind the guidance from other authors we decided not to eliminate the indicators that have a correlation from a model, since there was no substantial change in results. By eliminating these indicators we only distort our latent variable. This means we accepted the first model as a correct one. However, we decided to continue in reassessing the path analysis by using a different method. Model 3. PLS Path Models with Higher-Order Constructs. This is an alternative method for PLS path modeling for the type of construct when the indicators of Effectuation variable are aggregated into different dimensions such as Experimentation, Affordable loss, Flexibility, Recommitments, Partnering, Focus on Resources. And the indicators of PEU are also aggregated into several groups. In this case, the effect of Effectuation was reduced noticeably and it is equal to the effect of Causation. The good news was that the coefficients of the effect of Effectuation, Causation and Uncertainty to the Export Performance are significant based on Bootstrap results with 5000 re-samples. In the first two models the Effectuation as a whole construct has a higher effect on Export Performance while its indicators have insignificant weights. In the third model where each dimension is treated as independent construct that contribute to a bigger Salomat Yuldasheva 36 construct, the effect of Effectuation is considerably lower but the indicators of the separate dimensions have improved their weightings due to their reflective treatment. One of the reasons for such results is that our sample size of 103 respondents is too small and homogeneous to be able to properly distinguish between several dimensions of Effectuation construct, but large enough to measure Effectuation as a whole. Therefore assessing the effect of each dimension separately is not very effective. Another reason might be due to some limitations of the only available measurement scale (at the time of writing of this thesis) for the construct Effectuation. The construct Causation did not have any methodological problems as yet. The reflective measurement for this construct has generated good coefficients. Causation, as stated in the previous chapters of this thesis, demands a good management, marketing, financial management, business planning skills and knowledge as well as the availability of information. It has been discussed several times that in the countries with transition economies there is a lack of all those skills, a solid business education programs, stable business environment and therefore the deficit the needed information. We included several separate control questions in different parts of a questionnaire which would assess whether Causation techniques such as competitive analysis have been implemented in reality. Based on the answers provided by the entrepreneurs we have a general sense that almost any of the exporters did not use causal techniques, though we should be careful with our general control questions that have not been scrutinized on several research occasions. The provided answers have let us assume that those coefficients for the construct Causation are much lower in reality than they are in our models and therefore we may even ignore the effect of this construct on company’s Export Performance. Summarising the results from our first and a third models there is a positive effect of decisions based on Effectual logic on the Export Performance. There is a positive effect of decisions based on Causal logic on company’s export performance. However based on our control questions there are no causal decisions taken in reality. Based on these results and assumptions the effectual decisions lead more to export performance. The Role Of The Entrepreneurial Logic In Export Performance 37 In the chapter 3, you will also find the assessment of the effect of entrepreneurial characteristics on the choice of effectual logic and also you will find the analysis related to the effects of a Perceived Environmental Uncertainties as a moderator between Effectuation and Export Performance. Main contributions of the study in chapter 3 to entrepreneurship field were the findings that: - Limited effect of entrepreneurial previous experience and expertise in preferring effectuation to causation in Uzbekistan. - Limited or no use of causation in the country with transition economy. - There is no role of perceived level of uncertainty in the relationship between Effectuation and Export Performance. - Even in a highly uncertain business environment of Uzbekistan (as evaluated by international organizations such as World Bank) the entrepreneurial perceptions of uncertainties are from low to medium level. - Positive effect of effectuation on company’s exporting. - It is the first study of the use of Effectuation in Central Asia, specifically in Uzbekistan. - It is the first implementation of Partial Least Square Path Modeling method in Effectuation related studies. - It is the first use of moderated interaction of Perceived Environmental Uncertainty in Effectuation-Export performance relationship. In overall, in this thesis we focused on three identified gaps in the entrepreneurship literature: First, there was a need for more studies in entrepreneurship field in Central Asia. The market context of Central Asian transition economy is more dynamic and hostile, as characterized by economic, social, and political instability and uncertainty (Newman, 2000). As a result, the entrepreneurship outcomes are not as certain as suggested in the previous literature on the economic transformation in transition economies’ (Zahra, 1993, 522). Second, there are limited studies that discussed the entrepreneurial logic in the countries with economies in transition. Salomat Yuldasheva 38 Third, although research in effectuation comprised the fields such as internationalisation processes of businesses and international entrepreneurship, it still needed to be enriched with studies about exporting in businesses. This study also demonstrates that although the transition economies are very uncertain and entrepreneurs with their employees are lack of quality business backgrounds, the actions and decisions they take can be backed up by effectuation concept, which in turn provides the connection between the theoretical knowledge and entrepreneurial practice. The Role Of The Entrepreneurial Logic In Export Performance 39 Paper 1 1. Effectual Problem Space vs. Transitional Economy Abstract This chapter is dedicated to a theoretical discussion of the concept of Uncertainty through the lens of Effectuation theory and Institutional theory. The main objective of this part is to theoretically scrutinise the conditions of an Effectual Problem Space described in Effectuation theory and compare it with a business environment created in transition economies during their institutional transformations. In doing so the focus was given to the transition economies in the Central Asian countries and specifically Uzbekistan’s institutional environment was the main concern. The analysis revealed that the highly uncertain environment presented by the terminology Effectual Problems Space (Sarasvathy, 2001) share with the same features of a business environment of a transition economy. Each component of an effectual space was discussed in the current practices of entrepreneurs in Uzbekistan. The discussion of uncertainties, stemmed from institutional settings and government regulations, through the lens of Effectuation theory is the first in the literature and this is our contribution to this field. We opened a new discussion area within Effectuation theory by proposing that the ideal Effectual Problem Space with high (Knightian) uncertainty, together with goal ambiguity and environmental isotropy is found in the transition markets. Salomat Yuldasheva 40 1.1 Discussion of Uncertainties Uncertainty has been the focus of many scholars in various areas of research. It has been considered as one of the most important factors in strategic management field (Pfeffer & Salancik, 1978; Thompson, 1967; March & Simon, 1958), as a major determinant of a firm´s governance mode (Balakrishnan & Wernerfelt, 1986; Rumelt, et al., 1984; Porter, 1980; Williamson, 1975), as an essential component of entrepreneurship (Smith & DiGregorio, 2002; Amabile, 1997; Gartner, 1990; Schumpeter, 1934), as a conceptual cornerstone for most theories of the entrepreneur (McMullen & Shepherd, 2006) and as a particularly relevant concept to transition economies (Susjan & Redek, 2008). The literature on uncertainty is very rich with its diversified techniques in grouping and categorising this concept. There are several famous classics that have opened the research on uncertainty. Knight (1933) defines uncertainty as a state that there is ‘no valid basis of any kind for classifying instances’ to determine a probability from past experience or statistical calculation (p. 225). Knight separates uncertainty from risk in that while risk can be measured by a prior probability or a statistical probability, uncertainty cannot be measured at all. Knight emphasizes the separation of risk and uncertainty because he believes that the separation helps to avoid confusions about the cause of profit. Knight points out a positive aspect of uncertainty considering the uncertainty as the source of opportunity. J.M. Keynes (1937) insisted on the relevance of true uncertainty for real economic life. He defined uncertainty as a concept referring to matters about which no calculable probability is possible (Keynes, 1937, pp. 213–214). His followers (e.g. Davidson, 1982, 1991; Lavoie, 1992) post-Keynesian economists adopted this concept and treated uncertainty as an aspect of the open future which does not obey the mathematical laws of probability. Past and current events do not provide a statistical guide to knowledge about future outcomes (Arestis, 1992). Penrose (1959) emphasizes the role of uncertainty with respect to the ability that an entrepreneur takes an action with confidence. Specifically, the role of information is The Role Of The Entrepreneurial Logic In Export Performance 41 emphasized in decreasing uncertainty, because entrepreneurs can be confident when they have enough information to estimate the possible course of future events. “Uncertainty resulting from the feeling that one has too little information leads to a lack of confidence in the soundness of the judgment that lie behind any given plan of action” (p. 59). The amount of information will vary across firms because firms are assumed to have heterogeneous resources and capabilities. Therefore, each firm experiences different levels of uncertainty. Firms with lower level of uncertainty will expand more aggressively, because managers of those firms can be more confident in their actions. Penrose argues that each firm face different level of uncertainty because firms have different resources and capabilities. Thompson (1967) argues that organizations are affected by uncertainty from environmental factors that organizations cannot control. Organizations, then, respond to those factors by actions that decrease uncertainty. By internalizing contingencies into closed-system, an organization can pursue rational decision-makings without uncertainty. In fact, while organizations in closed-system can seek goal achievement through internal control, organizations in open-system must shift their attention from goal achievement to survival because they cannot control external factors. Therefore, organizations in open-system should cope with both internal control issues and external uncertainty problems. One way to solve this problem is vertical integration. Vertical integration allows organizations to control unexpected events in advance and to seek goal achievement in closed-system. These studies have defined the concept of uncertainty and they treat it at a conceptual level. They do not seek to operationalize uncertainty. A number of studies further developed this concept by focusing on more practical implementation and measurement of uncertainty. One of these concepts is a perceptual view of uncertainty. Perceptual views of uncertainty emphasize individual differences in ways to perceive uncertainty. It is believed that the perception mediates between the environment to make a meaning of it and the taking necessary action. (Jauch & Kraft, 1986; Terborg, 1981; Lorsch & Allen, 1973; Lawrence and Lorsch, 1967; Burns & Stalker, 1961). Salomat Yuldasheva 48 discontinuously; they may change little for prolonged periods of time, then change very abruptly. Social norms (culture), on the other hand, tend to change continuously, albeit slowly. Legal arrangements are again somewhat in between. This is in confirmation of ideas of North (1990) about that the changes in informal norms, conventions, or personal standards of honesty occur gradually and sometimes quite subconsciously as individuals evolve alternative patterns of behaviour consistent with their newly perceived evaluation of costs and benefits. Moreover Roland (2004) considers that the culture and technology have many things in common. Both tend to evolve continuously and slowly, both involve research and experimentation, trial and error, and learning. Education is the acquisition of both technology and culture. The evolution of technology and culture are difficult to predict because they obey the laws of the evolution of knowledge. These commonalities between culture and technology also mean that they evolve in parallel. Sets of beliefs related to technology influence sets of beliefs related to interactions among humans. Roland (2004) proposes to view institutional change as the interaction between slow-moving institutions, culture in particular, and fast-moving institutions such as political and legal institutions. The interaction between slow-moving and fast-moving institutions provides an explanation for why the transplantation of ‘best-practice’ does not work. It provides content to the idea that different countries have different ‘local conditions’, which arise from each country’s slow-moving institutions. It also provides a rationale for why reforms in a given country must build on these local conditions. In other words, countries with different cultural and historical paths must find within their existing slow-moving institutions the roots for changes in their fast-moving institutions. North (1990) explains institutional (and organizational) change as endogenous, an essential step to further progress in economic history and economic development. He puts forward the main elements of the institutional change: Agents, Sources, Process and Direction. According to him, the agent of change is the entrepreneur, the decision maker(s) in organizations. The subjective perceptions (mental models) of entrepreneurs determine the choices they make. The Role Of The Entrepreneurial Logic In Export Performance 49 The importance of individual mind is also stressed by DiMaggio et al. (1991). They define an emerging perspective the 'new institutionalism as rejecting the rational-actor models of Classical economics. This theory seeks cognitive and cultural explanations of social and organizational phenomena by considering the properties of individual units of analysis that cannot be reduced to aggregations or direct consequences of individuals’ attributes or motives. The importance of the cognitive abilities of individuals in response to environmental changes was the focus of acknowledged. Simon (1996). His ‘Bounded rationality’ conception has an important implication in the discussion of organisational response to institutional changes. Bounded rationality is a school of thought about decision making that developed from dissatisfaction with the “comprehensively rational” economic and decision theory models of choice. Bounded rationality assumes that actors are goal-oriented, but there are cognitive limitations of decision makers in attempting to achieve those goals. Rather than making assumptions about decision making and modelling the implications mathematically for aggregate behaviour (as in markets or legislatures), bounded rationality adopts an explicitly behavioural stance. The behaviour of decision makers must be examined, whether in the laboratory or in the field (Jones, 1999). Simon (1996) showed how the model did not comport with how people really made decisions. He developed “procedural model of rationality”, based on the psychological process of reasoning of how people conduct incomplete searches and make trade-offs between values (Jones, 1999). Relating to the discussion of institutional changes, the sources of change are the opportunities perceived by entrepreneurs. They stem from either external changes in the environment or the acquisition of learning and skills and their incorporation in the mental constructs. For instance, the changes in relative prices have been the most commonly observed external sources of institutional change in history, but changes in taste have also been important. The acquisition of learning and skills will lead to the construction of new mental models by entrepreneurs to decipher the environment; in turn the models will alter perceived relative Salomat Yuldasheva 50 prices of potential choices. In fact it is usually some mixture of external change and internal learning that triggers the choices that lead to institutional change (North, 1990). Deliberate institutional change will come about therefore as a result of the demands of entrepreneurs in the context of the perceived costs of altering the institutional framework at various margins. The entrepreneur will assess the gains to be derived from re-contracting within the existing institutional framework compared to the gains from devoting resources to altering that framework. Thus entrepreneurs who perceive themselves and their organizations as relative (or absolute) losers in economic exchange as a consequence of the existing structure of relative prices can turn to the political process to right their perceived wrongs by altering that relative price structure. Douglas North (1990) – “In any case it is the perceptions of the entrepreneur, correct or incorrect that are the sources of action”. The entrepreneurial responses to institutional environment in the role of main actors in institutional change process in transition economies are discussed in the next chapter. An interesting part of this review is about the role of uncertainties. While North (1990) argues that institutions have been devised by human beings to create order and reduce uncertainty and that they need to be in constant elaboration, the institutional development process itself creates uncertainties for future decisions. The larger the number of rule changes, the greater the number of losers and hence opposition. This in turn generated a new term “Institutional uncertainty”. Institutional uncertainty is a broad concept, encompassing very different forms of uncertainties within the political environment. Brunetti & Weder (1998) divide them into four categories that measure different aspects of the (un)certainty of the institutional framework. Government instability indicators concentrate on the history of government changes or on the likelihood of a government’s staying in power. This assumes that every significant change of executive power is likely to be accompanied by policy changes that introduce an element of uncertainty into the institutional framework. The more unstable the government, the higher is institutional uncertainty. The Role Of The Entrepreneurial Logic In Export Performance 51 Political violence indicators measure all forms of violent events associated with the political process. The more common violence is in the political process, the less secure are people and property. Because this instability spawns uncertainty, it reduces investment according to the theoretical considerations. Policy uncertainty indicators concentrate on uncertainties created by changes in policies rather than in politics. Policy uncertainty can be expressed either through the volatility of the institutional framework (for example, the number of changes in the constitution) or through the volatility of outcomes (for example, the volatility of the inflation rate). Enforcement uncertainty indicators focus on the relation between private sector and the state, namely the degree of confidence private firms can have that their property and contract rights will be unarbitrarily enforced. These measures concentrate on the discretionary behaviour of the judiciary as well as the bureaucracy. 1.4 Institutions in transition economies. Many authors agree that transition is largely a process of institutional change (Eicher – Schreiber 2010; North 2005; Redek – Susjan 2005; Cornia – Popov 2001). The fundamental role of institutions in the economic transition process has been focus for many social scientists. (see for example, Havrylyshyn & Van Rooden, 1999; Stone, Leve & Paredes, 1996). Accordingly, institutional economics may be particularly relevant in explaining economic differences among transition countries. Transition in the successive states of the former Soviet Bloc countries is a process that has been implemented in the last 25 years. The corresponding process in Latin America has about 30 years of record. By comparison, the economic transition in China has been a gradual stateled process that started back in 1979 and has had more than 35 years of history. Transition reforms varied in characteristics, goals, scope and scale of development and implementation. Regardless of the specifics of the process, the transition has resulted in changes of the nature of business and its specifics in each particular country. By mid1990, about 35 per cent of Salomat Yuldasheva 52 the output of the former Soviet Bloc countries was created by the private sector of the respective national economies, market supply had increased and business environments across the region were in the process of continuous transformation. (Marinov & Marinova, 2011) All the transition economies are characterised by continuous institutional change going in the same direction - the move from government’s central planning and allocation resources towards decentralised market allocation which necessitates substantial changes in laws and regulations, in social and individual minds. Marquis & Raynard (2014) broadly defined transition economies as countries undergoing fast-paced turbulent change as a result of economic liberalization, rapid industrialization, and increased integration into the global economy. There are differences between traditional developing countries in Asia, Latin America, Africa, and the Middle East and transition economies in the former Soviet Union, Eastern Europe and East Asia (Khanna & Palepu, 2010; Wright et al., 2005; Hoskisson et al., 2000). However, there are several common factors in both emerging and transition countries critical factor. One is the strong influence of the government and the prevalence of state-owned firms (Douma, et al., 2014; Terpstra-Tong, et al., 2006; George, & Kabir, 2006; Evans, 1995;). It is important for businesses to consider the frequency and level of government interventions, as well as the overall stability of the political environment in their operational decisions. In transition and emerging economies there is a greater informality and less developed government and regulatory infrastructures. Both regulatory and enforcement environments are only marginally developed, such that market regulation, corporate governance, transparency, accounting standards, and intellectual property protection may not be as reliable or mature as those in more advanced economies (Marquis & Qian, 2014, Marquis, et al., 2011). Under these conditions, corruption and opportunistic behaviour is especially problematic. Thus international firms that are doing business in these markets frequently turn to detailed contracts to govern their joint ventures (Luo, 2002). These economies tend to be characterized by a younger population, an expanding workforce, and rapid urbanization. These factors have important implications for day-to-day business operations, including marketing and The Role Of The Entrepreneurial Logic In Export Performance 53 promotion strategies, staffing and training, and consumer preferences. ( Marquis & Raynard, 2014). Transition economies typically have less developed or inadequate technological and physical infrastructures as compared to developed economies. For example, inadequate communication technology, commercial and transportation infrastructures, power generation capabilities, and distribution channels are critical challenges that businesses need to consider and overcome (Hitt, et al., 2000; Miller, 1998). These complexities in the institutional environment created a number of institutional obstacles to entrepreneurship. Institutional obstacles to entrepreneurial activity were first highlighted by Baumol (1990) and have been explored in recent years by a number of economists including Sobel (2008); Djankov, et. al., (2004); McMillan & Woodruff (2002, 1999), De Soto (2000), and Baumol (1990) emphasises the critical role of institutions in directing entrepreneurship, either to productive or to non-productive or even destructive activity. Entrepreneurship levels were in fact lower in the transition economies as a group than in the other developed and developing economies of the GEM sample confirmed by several researchers. (Aidis, et. al., 2008; Estrin, et. al., 2006; Aidis & Mickiewicz, 2006; McMiIllan & Woodruff, 2002). The weakness of institutions such as property rights enforcement lead to low level of entrepreneurial activity (Estrin & Mickiewicz, 2010), especially it is confirmed in low income and middle income economies (Aidis et al., 2009) and discourage entrepreneurs to reinvest their retained profits into business. (Johnson, et.al., 2002). The EBRD transition indicators (EBRD Transition Report, 19942009) show that implementing many aspects of the reform of formal institutions can be brisk, though arriving at a well-functioning set of new institutions takes much longer, largely because informal institutions are more difficult to change than formal ones (North, 1990). Thus the rapid pace of formal institutional change in transition economies during the 1990s was not matched by changes in informal institutions (Meier & Stiglitz, 2001). The legacy of communism was not conducive to entrepreneurial activity (Estrin et al., 2006), as reflected by the social attitudes shaped during the communist period (Schwartz & Bardi, 1997). Salomat Yuldasheva 54 Aidis et al. (2008) posit that the level of generalised trust is low in transition economies therefore entrepreneurial entry is less common and new ventures are started by those who have already established themselves in business. Furthermore entrepreneurs require financial resources in order to establish and run their new firms and they must either provide this from their own saving, or borrow it from financial markets (OECD 2006; Beck, et. al., 2008; 2006; 2005; Storey 1994; Stanworth & Gray 1991). Neither of these sources was widely available in the transition economies initially. The transition economies score poorly on both dimensions of the supply of finance, in contrast to some of the developed countries, where formal credit abounds (United States, Japan, United Kingdom) and to some of the developing countries where informal finance is extensive (Uganda, Jordan, Peru, Ecuador, Mexico. China scores much higher both on formal and informal credit dimension and in line with smaller neighbouring Asian economies of Thailand, South Korea and Taiwan. (Smallbone & Jianzhong, 2009). As weak formal institutions in the transition countries may be partly substituted by strong private networks and informal finance as, for example in Latin America. However, this does not seem to be occurring in transition economies and a limiting factor here is the lack of personal wealth. Aidis et al. (2008). Several other institutional characteristics also affect entrepreneurial endeavour: the quality of commercial code, the strength of legal enforcement, administrative barriers to entry and to business activities, the prevalence of extra-legal payments and a lack of market-supporting institutions.( Baumol ,1990; McMillan & Woodruff , 2002; 1999), De Soto, 2000; Djankov, et. al., 2004; Sobel, 2008). The costs created by an inefficient, inconsistent and/or corrupt system of tax collection may substantially add to the costs of running an entrepreneurial business. Aidis & Mickiewicz (2006) found that perception of high taxes ranks highest amongst the obstacles identified by small firms in Lithuania. Schwartz & Bardi (1997) identify cultural variation across different post-communist societies. The transition countries that went through the full cycle of communism from the end of World War I until late 20th century, including the damaging Stalinist period (Applebaum, 2003) also score lower in terms of values conducive to entrepreneurship, as compared with The Role Of The Entrepreneurial Logic In Export Performance 55 those countries where Communism was introduced after the end of World War II. Similarly to Sztompka, 1996; Schwartz & Bardi (1997) show that the differences between transition and comparator countries are lower for younger people, both because of the generational effect and the greater capacity of young people to learn and adopt to new conditions and cultural influences. The corruption dimension is located at the intersection of formal and informal institutions, and is likely to have a significant impact on entrepreneurship (McMillan & Woodruff, 2002). Aidis & Mickiewicz (2006) argue that corruption is damaging to entrepreneurial activity and expansion as it increases the level of uncertainty and reduces entrepreneurial gains. Corruption is a key outcome variable reflecting all institutional weaknesses in the economy, and it results from weak property rights, arbitrariness in state administration, weak judicial system, excessive and non-transparent regulatory frameworks but also prevailing social norms and behavioural expectations (Aidt, 2009; Treisman, 2007;Tanzi, 1998). The successful entrepreneurs can develop strategies that minimize the detrimental effects of negative informal institutional influences, through networking (Minniti & Levesque, 2008), but these adaptations come at a high cost (Aidis et al., 2008). Therefore it is observed by Estrin et al., (2006) very low levels of entrepreneurship combined with greater reliance on informal networks and endemic corruption in Russia. In contrast, the levels of entrepreneurship are higher in CEE and reliance on informal networks is less; moreover, though corruption still affects a significant percentage of enterprises in these countries the levels are less than in the Former Soviet Union (FSU) block (Transition Report, 2009; Aidis & Mickiewicz, 2006; Aidis et al, 2008). Existing research suggests that post-communist societies, and especially members from the older generation, are characterised by a different set of values from that typically pertaining in developed market economies. In particular, autonomy and mastery score lower, and generalised trust is missing; moreover, the difference is more marked in the FSU than CEE. These values affect entrepreneurship directly and may also affect it indirectly via their impact on the way formal institutions function. In particular, lack of trust affects expectations and Salomat Yuldasheva 56 may result in a self-fulfilling vicious circle of poor institutional practices and corruption (Estrin & Mickiewicz, 2010). Aidis et al. (2010) concluded in their findings that (a) institutional obstacles to entrepreneurship have different impact in rich countries compared to poor countries; (b) institutional obstacles have a stronger impact on ‘opportunity entrepreneurship’ than on ‘necessity entrepreneurship’. These findings are confirmed by Sarasvathy (2004, p. 209), that the significance of institutions on the level of entrepreneurial activity will be greater for opportunity than necessity entrepreneurship. She notes, that most individuals would become entrepreneurs due to suitable conditions; a combination of opportunity and a conducive environment. Therefore it would be expected that individuals who are reacting to entrepreneurial opportunities in the environment to be more sensitive to the overall institutional environment, than individuals who become entrepreneurs purely out of necessity. Moreover in the same research Aidis et al. (2010) confirmed that (c) two institutional indicators - property right protection and access to finance - appear to have a dominant impact on entrepreneurship; and that (d) institutions have a long term impact. 1.5 The Style of the economic transition The economic transition process in Central Asian countries seems to the process of effectuation, as all the countries started with what they were left in hands after the collapse of the Soviet Union and what knowledge and experiences they had, and whom they knew for the partnerships. This is consistent with what says Sarasvathy; entrepreneurs begin with three categories of "means": they know who they are, what they know, and whom they know—their own traits, tastes, and abilities; the knowledge corridors they are in; and the social networks they are a part of. At the level of the firm, the corresponding means are its physical resources, human resources, and organizational resources. At the level of the economy, these means become demographics, current technology regimes, and sociopolitical institutions such as property rights. (Sarasvathy, 2001a). All the Central Asian countries had to heavily rely on what they had in their initial stages of the transition, their major natural resources, human capital and a destroyed institutional environment. The Role Of The Entrepreneurial Logic In Export Performance 57 In contrary, the institutional management of the Eastern European countries was mainly done by using plans which included criteria for conditions to entry to European Union (EU) that can be called a causal approach to the management of the country. The causal approach is possible when there is a low level of uncertainty and availability of funds to accomplish the set objectives, as in the case of EEC, where they had access to EU funds (initially preAccession funding and latterly Structural Funds). This has encouraged new member states to adjust their institutional structures and processes to increase their chances of securing this funding, some of which were used to promote and support entrepreneurship at the national and regional levels. Apart from a clearer separation of policy making from policy implementation, with potential benefits in term of greater transparency and accountability, the EU influence has also extended to the policy process itself. This includes requiring explicit links between strategic policy objectives and action plans, which are tied into the budgetary process. (Smallbone & Welter, 2010). This has helped to reduce the so-called ‘implementation gap’, which has previously been identified as a common feature of government policy in transition countries (Smallbone & Welter, 2001b). Accession to the EU contributed to a more active stance on the part of government in some countries in the late 1990s. For example, in Poland, this was reflected in the publication of strategic policy documents in 1995, 1999 and 2003. In Estonia, by explicit enterprise policy documents published in 2002 and 2006 (Smallbone & Welter, 2009a) is one of the more explicit influences of EU membership on institutional change in a number of the new member states. (Smallbone & Welter, 2010) However, the states of the former Soviet Union did not have this privilege after the collapse of the union. Most of the formerly Soviet states made efforts to rebuild and restructure their economic systems, with varying results. The process triggered a severe transition decline, with Gross Domestic Product (GDP) dropping by more than 40% between 1990 and 1995 (The World Bank, 2002). This decline in GDP was much more intense than the 27% decline that the United States suffered in the wake of the Great Depression between 1930 and 1934 (Kalikova & Associates Law Firm, Kyrgyzstan, 2009). The reconfiguration of public finance Salomat Yuldasheva 64 Limited Financial Resources One more characteristic of effectual space is the environment with scarce financial resources. Sarasvathy’s seminal paper and her subsequent studies with her colleagues have put forth the arguments that effectuation principles - means focus, exploitation of contingencies, affordable loss, and pre-commitment from strategic partners - are more effective than causation-based strategies in maintaining control of the ventures’ future when entrepreneurs have limited resources (Dew et al. 2009; Read & Sarasvathy 2005; Sarasvathy 2001). Affordable loss principle in Effectual theory explains that it is more feasible to invest what you can afford to lose and not the amount set as an objectives startup capital. This means investing the available resources and trying to achieve the best result possible from the amount available and risk no more than you can afford to lose. (Sarasvathy, 2001). To make effective decisions while being in an effectual problem space, entrepreneurs tend to follow the affordable loss principle which is useful in decreasing the role of uncertainty (Sarasvathy, 2008, p. 81). Heritage Foundation evaluates the level of Financial Freedom in countries. Financial freedom is an indicator of banking efficiency as well as a measure of independence from government control and interference in the financial sector. State ownership of banks and other financial institutions such as insurers and capital markets reduces competition and generally lowers the level of access to credit (Heritage Foundation, Methodology Report). In transition economies banks are still managed by Central Bank of a country. The table 4 below shows the top 30 countries ranked high in the level of the Financial Freedom in 2016. The economy’s financial freedom index includes five broad areas: The extent of government regulation of financial services; The degree of state intervention in banks and other financial firms through direct and indirect ownership; Government influence on the allocation of credit; The extent of financial and capital market development, and Openness to foreign competition (Heritage Foundation, Methodology Report). The Role Of The Entrepreneurial Logic In Export Performance 65 Table 4: Top 30 countries in Index of Financial Freedom ranked by Heritage Foundation in 2016 Source: http://www.heritage.org/index/explore, retrieved on 28.11.2016 From the above top 30 countries that achieved comparatively good financial freedom Estonia and Lithuania did good job in reforms and this has been achieved after more than 25 years of transition process. These two countries, although from former Soviet Union, are located in Eastern Europe and used funds and instructions from European Union in their transition processes. Armenia is another country that has achieved good results in its financial sector. The rest of the countries in the list are not transition economies. Many other countries in their transition economy still have unfavorable financial environment for the conduct of a business. Usually when entrepreneurs require financial resources they must provide this from their own (or family) saving, or borrow it from financial markets. Neither of these sources is widely available, particularly at the onset of transition. Because under communism, individuals were not permitted to accumulate financial assets, and almost all wealth was owned by the state and this was a major constraint on the possibilities for entrepreneurship (Pissarides, 1999; Chilosi, 2001), this was true in the initial years of the transition process. After a decade, although there is no legal limits to accumulate financial assets, continuous economic crisis and lack of earnings causes the scarcity of financial resources. 1 Australia 90 16 Switzerland 80 2 Hong Kong 90 17 The Netherlands 80 3 Bahrain 80 18 United Kingdom 80 4 Canada 80 19 Albania 70 5 Czech Republic 80 20 Armenia 70 6 Denmark 80 21 Austria 70 7 Estonia 80 22 Belgium 70 8 Finland 80 23 Botswana 70 9 Liechtenstein 80 24 Chile 70 10 Lithuania 80 25 Colombia 70 11 Luxembourg 80 26 France 70 12 New Zealand 80 27 Germany 70 13 Singapore 80 28 Hungary 70 14 South Korea 80 29 Ireland 70 15 Sweden 80 30 Israel 70 Salomat Yuldasheva 66 Financial markets in transition are often very limited and underdeveloped and the market structure is highly concentrated with banks often achieving only low levels of efficiency. The banking sector is also relatively inexperienced in private sector lending, and project finance in particular, and thus lacks organizational capabilities to finance entrepreneurial businesses (Pissarides, 1999). The evidence suggests that state owned banks continued to favour state owned firms and, to some extent, large privatised firms by providing soft loans (Lizal & Svejnar, 2002). However, they rarely lent to new businesses in private sector, particularly at the start of the transition process (see Feakins 2002; Richter & Schaffer 1996). This was a serious problem for the development of entrepreneurship because financial development has been found to exert a disproportionately large effect on the growth of industries that are dependent on small firms (Beck et al., 2004). This reluctance to give credits for MSMEs stems from the asymmetry of information, i.e. lack of relevant credit and financial information on MSMEs, and limited or lack of adequate collateral. Moreover weak property rights remain a major obstacle to the development of the financial system as they limit the efficient use of collateral in financial transactions. For example, in Tajikistan lending to small businesses continues to be hampered by lack of transferable land-use rights. In Turkmenistan, despite direct lending from the state, banks can still request collateral which, in the absence of clear property rights, is a major obstacle to SME lending. In Uzbekistan, access to financing of SMEs is limited due to the lack of full land property rights for farmers. (Investments and Competitiveness In Central Asia, 2013). Significant government interventions in the form of subsidised interest rates and direct lending distorts competition and credit allocation. Moreover the excessive level of corruption, makes the credits with low interests available to only networks of people working in banks, or to the government elites. Capital scarcity poses a problem not only for the establishment of businesses but also for their growth. Case studies suggest that engagement in trade often serves as initial capital accumulation that allows entrepreneur to branch off into a different business (Smallbone & Welter 2001b). Portfolio entrepreneurship is another way for businesses to hedge against volatility of markets in transition. The Role Of The Entrepreneurial Logic In Export Performance 67 Lussier & Pfeifer (2000) compare Croatian and US entrepreneurs and find that the Croatians start their business with less capital, less planning and less external management advice. They appear more spontaneous and less systematically prepared in setting up their own business. This would suggest some adaptation of entrepreneurial characteristics to the transition environment. Generally, they adopt strategies that allow them to circumvent burdensome institutions or create substitutes for missing ones. For example, Johnson, McMillan and Woodruff (2002) found that entrepreneurs in transition economies “succeeded by self-help: they built for themselves substitutes for the missing institutions. Reputational incentives substituted for court enforcement of contracts. Trade credit (loans from firm to firm along the supply chain) substituted for bank credit. Reinvestment of profits substituted for outside equity”. Strategies documented in the literature include engagement in trade and diversification of activities as a means of capital accumulation and hedging against risks (Smallbone & Welter 2001) and using network-based transactions to substitute for missing or costly markets (Batjargal 2003; Stark 1996). These are related to the entrepreneurial skills such as building effectual networks, creating partnerships, using available financial resources and shaping businesses based on partner interests discussed in effectuation articles. The importance of entrepreneurial skills flexible to changes Sarasvathy (2001) argues that effectuation is the tool when there was no market before, when there is no history of such companies or industries at all, when there was no such an economy before, when there is a complete uncertainty and complete newness . This is another feature of an ideal effectual space where leveraging contingencies by embracing surprises that arise from uncertain situations, remaining flexible rather than fixing to existing goals would be required. Sarasvathy (2001) has proposed effectuation as the dominant decision model for entrepreneurial decision making, particularly in the absence of preexistent markets. In the case of transition economies there was no such institutions, markets and customers. Organisations, firms and institutions could not rely on knowledge gained from past experience because past experiences can be irrelevant in the new business environment where institutions have changed. Instead, they need to have broad knowledge gained from currently Salomat Yuldasheva 68 on-going experience via experimentation in order to react quickly to changes. Meyer and Gelbuda (2006) pointed out, the companies are required to manage their business processes in the face of dramatic institutional change and great uncertainty. Therefore, entry to the East European market often occurs through inter-firm cooperation, especially joint venturing (see, e.g. Meyer & Tran 2006; Törnroos & Nieminen 1999). Unstable institutions as well as constraints on SME, such as lack of managerial skills, international market knowledge, etc., lead firms to focus on short-term strategies and to avoid longer term planning. Similarly Mainela & Puhakka (2014) found in their study that the managers acting in the transition markets particularly need flexibility and constant alertness to changes in the relationship network and the external environment. Proactiveness and innovative use of third-party relationships seem characteristic of acts leading to favorable development. The economic success of transitional economies and its further evolution depends on the ability of international and local firms to adapt to the changing environment in order to face all the challenges/difficulties. Effectual Network Another component of an Effectual Space is the effectual network which is posited in the heart of effectuation theory. In effectual context, Sarasvathy (2008) finds that expert entrepreneurs in building a new venture they start with their means. These means can be grouped into three categories: (1) I ammy traits, tastes, and abilities (2) what I knowmy education, training, expertise, and experience (3) whom I knowmy social and who professional network. This involves building a network of self-selected stakeholders. This principle includes negotiating with any and all stakeholders who are willing to make commitments to the project, without worrying about opportunity costs, or carrying out competitive analyses. For this the interaction with other people is crucial. The potential stakeholders are not predetermined, but they emerge from the interaction process (potential customers can become partners, potential suppliers – customers, etc.). This is possible as the goals are not clearly defined and, actually, their shape is a result of the interaction. New stakeholders bring visions, goals, and means into the venture. (Sarasvathy, 2008) Thus, the commitment of the effectual The Role Of The Entrepreneurial Logic In Export Performance 69 stakeholders produces new goals as well as new means that belong to two concurrent cycles. Adding new means to the pre-existing ones expands the resources at one’s disposal. Actual means are transformed from ‘who I am, what I know, whom I know’ into ‘who we are, what we know, whom we know’. (Sarasvathy, 2008) Therefore creating new goals modifies ‘what I can do’ into ‘what we can do’. Converging goals/possible courses of action create new markets. Thus, a new market is not the result of the design of a specific person (Sarasvathy, 2008, p. 107) but comes through the interaction of the members of the network and not-yet-members of the network – it is the result of the process. The necessity of effectual entrepreneurship in network creation is similar to the needs of entrepreneurs in transition economies. A persistently recurring issue in studies of entrepreneurs in transition economies is the importance of networks, across transition economies from China (Peng & Heath, 1996; Batjargal & Liu, 2004) and Vietnam (McMillan & Woodruff, 1999) to Hungary (Stark 1996, Lyles et al. 2004) and Russia (Batjargal, 2003). The way entrepreneurs use networks varies greatly as the practices are often culturally grounded. For example guanxi networks in China ‘function’ in a very different way than ‘blat’ networks in Russia (Michailova & Worm, 2003). Scholars from a variety of disciplinary perspectives ranging from economics (McMillan & Woodruff, 2002), to sociology (Stark 1996; Sedaitis 1998; Batjargal 2003), to business strategy (Lyles et al., 2004; Puffer & McCarthy, 2001; Peng, 2001; Peng & Heath, 1996) and entrepreneurship (Smallbone & Welter 2001a,b.) have recognized the importance of the phenomenon, and have investigated its antecedents and consequences that included questions such as why networks are so important in transition economies and which consequences the entrepreneurial sector has if heavily relies on personal relationships. For example, Mainela & Puhakka (2014) state that the insecurities of the transition context and the international joint venture relationships could be seen to emphasize the capabilities to proactively avoid problems and quickly react to unexpectedly upcoming ones. In doing so, partnering with great variety of actors is the primary means for creating impressiveness and influence. Salomat Yuldasheva 70 With respect to former centrally planned economies, several authors have described how individuals use social contacts and individual networks, based on strong personal trust in order to pursue business endeavours (e.g., Ledeneva, 2006; Manolova & Yan, 2002; Peng, 2000; Smallbone & Welter, 2001a; Yan and Manolova, 1998). In such conditions, these personal networks represent an important potential resource in identifying and exploiting opportunities associated with institutional holes. (Smallbone & Welter, 2010). Smallbone and Welter (2001) found that 28% of entrepreneurs in Ukraine, Belarus and Moldovacountries are engaged in other occupations. Its occurrence is higher in former Soviet republics, and thus may reflect the need for security and access to resources through networking, which is increased by attracting several owners. Many scholars relate the prevalence of networking to the absence of a well-functioning formal institutional framework (McMillan & Woodruff, 2002; Peng, 2001). However there is also a view that sees the pattern of networking such as blat in Russia as historical and culturally embedded and thus not only as an outcome of the ways the institutional framework has developed during the period of economic transition (Vlachoutsicos, 2000, Buck 2003). Furthermore, the lack of developed business infrastructure and support services leads many business owners to depend on business assistance (financial, advice, etc.) through private networks. Research on CEE stimulated by sociology thus has emphasized the prevalence of networks as mechanisms of inter-personal and inter-organizational interaction, and thus as a means to access resources, but also as a source of inertia (Stark, 1996; Grabher & Stark, 1997; Kogut et al., 2000). This approach has been developed with respect to Russian entrepreneurs by Batjargal (2003). He considers systems of entrepreneurs’ social relations as social capital, which has been shown to enhance entrepreneurial performance in other contexts. In Russia, where pure market transactions are subject to high transaction costs, such social capital can be expected to be particularly important. In his empirical study, Batjargal (2003) investigates various dimensions of entrepreneurial networks for the Russian context, and finds that in particular weak ties and resource mobilization (i.e. the ability to access resources through network contacts) enhance revenue growth. The Role Of The Entrepreneurial Logic In Export Performance 71 The transaction costs argument runs as follows: underdeveloped formal institutions in transition economies cause extensive market failures due to information asymmetries, lack of contract enforcement, high search and negotiation costs and various other effects (Swaan, 1997). In consequence, firms either stay out of these markets or they have to create alternative means to secure themselves. Hence, they build business networks and rely on those relationships to ensure that business partners stick to their side of deals. Moreover, long-term relationships can be built to resemble a repeated game, so the anticipation of benefits from future collaboration outweighs the potential short-term profits of cheating on a partner. These business networks can extend and reinforce the effects of personal reputation. If business partners depend on reputation within a business network, they would be cautious to cheat on anyone in the network as the damaged reputation may outweigh the short term benefits of cheating – as observed by McMillan & Woodruff (1999) in Vietnam. 1.8 Effectual Problem Space of Uzbekistan Upon independence in 1991, Uzbekistan inherited one of the lowest standards of living in the Soviet Union; the economy was reliant on raw materials such as cotton, gold and natural gas, while heavily dependent on imports of oil, wheat, meat, and most manufactured goods. Against this background in the mid-1990s, the government began implementing a long-run strategy to transform the economy from heavy dependence on agriculture and natural resources to a modern industrial economy. See the Figure 3 Salomat Yuldasheva 72 Figure 3: Structural Changes in the Uzbek Economy over the Last 20 Years. GDP structure Source: The Path To Upper-Middle-Income Status In Uzbekistan. http://siteresources.worldbank.org/EXTPREMNET/Resources/EP119.pdf Initially this strategy was import substitution based, but recently has become more exportoriented and focused on nurturing selected infant industries (in which Uzbekistan might not have a comparative advantage) organized in state controlled industrial associations and stateowned joint-stock companies through open-ended protection. However some sources view the management plans of the government of Uzbekistan as flexible and more likely a short term oriented, for example this is mentioned in the article of Adams & Rustemova (2009), similar to a flexible effectual approach. Adams & Rustemova , (2009) state that especially it can be seen by looking at the definition of progress in Uzbekistan which is set year-to-year by the president and his advisors, who designate an annual campaign that targets a particular social group or problem for state support, such as “The Year of Mothers and Children” (2002), “The Year of Health” (2005), “The Year of Youth” (2008), “The Year of Rural Development” (2009), “ Caring About Elder People” (2015), “The Health of a Mother and a Child” (2016). This method they compare with the governing style of Kazakhstan. While Kazakhstan also followed flexible and broad plans during the first decade after its independence, in the second decade the president has proposed The Role Of The Entrepreneurial Logic In Export Performance 73 a plan of Kazakhstan-2030 that sets benchmarks and concrete goals with timetables, that is more similar to a causal approach. Kazakhstan-2030 lays out general priorities, but in its implementation, it has specific short-term goals for every two or three years that are based on a rational, managerial approach to policy making: analysing the problems the government would like to target, evaluating the government’s own capacity for solving the problem, analysing threats that might prevent the problem from being solved, and only then proposing strategic actions to resolve the problem. (Adams & Rustemova ,2009) As a low-middle-income country with a gross domestic product (GDP) per capita of US$1,715 and a population of 30 million (nearly half of all of the Central Asian population), Uzbekistan has seen stable economic progress since the mid-2000s, both in terms of growth and poverty reduction. Growth has averaged 8 percent per year since 2004 and extreme poverty has declined from 27 percent in 2000 to 15 percent in 2012. Figure 4: Poverty and GDP per capital Source: The Path To Upper-Middle-Income Status In Uzbekistan. http://siteresources.worldbank.org/EXTPREMNET/Resources/EP119.pdf Encouraged by this outstanding growth performance, the Uzbek authorities have set an ambitious goal for the country—to join the group of upper-middle-income countries by 2030. (World Bank, 2013). Salomat Yuldasheva 80 Figure 5: Tax reform is making life easier among firms surveyed in both years Source: Enterprise Surveys, 2011 Even under new tax system some enterprises are subject to additional payments to local budgets above the single tax payment. These payments are usually in the form of trade duties for selling alcohol, tobacco products, items made of precious metal and stones. Enterprises also have to pay excise tax, custom duties and VAT if they import materials or supplies. The biggest advantage from single tax payment system receive service enterprises that usually pay only single tax. In 2008 single tax payment rate was 8 % and 7% in 2009. (Ozbekyengilsanoat, 2008). But the rates of single tax varies due to the business type of enterprise. The current rates of single tax consist from 5% to 7% depending where the business is located and what type of activity is performing. However, according to some unofficial sources, the entrepreneurs still show some concern about taxation system. According to them on paper it is fine, but in reality it is more complicated, and there is no transparency in rules and regulations, and by the end of the day you will have to pay 20% of the revenues for taxes. The adoption of the new Tax Code of Uzbekistan failed to solve all problems related to taxation. International studies indicate businesses in Uzbekistan face some of the highest tax rates in the world. According to Doing Business 2009, Uzbekistan ranks among the top ten countries in the world in this indicator. (Business Environment in Uzbekistan as Seen by The Role Of The Entrepreneurial Logic In Export Performance 81 Private Enterprises, 2009). Certain tax rates are relatively low if taken alone, such as the Single Tax Payment (eight percent of turnover in 2008) or Corporate Income Tax (10 percent of profits in 2008). But even companies using the simplified tax system pay a high number of taxes and obligatory payments. Social insurance contributions constitute a particularly large burden for businesses. For every 100 soums of net profit retained, a business must hand over 170 soums in the form of taxes and obligatory payments. On average, enterprises are subject to seven taxes and obligatory payments, even under the simplified system. (Business Environment in Uzbekistan as Seen by Private Enterprises, 2009) The lack of information, not clear taxation system and therefore a high level of uncertainty are observed in this sphere. This is confirmed by the results of the IFC survey “Business environment in Uzbekistan as seen by small and medium enterprises, 2009”, around 62% of respondents were not happy with the taxation system. Additionally, tensions between entrepreneurs and tax regulation officers, frequent complaints and slow processes are the evident problems. At the present time the taxation burden is less than it was in the previous years. However, according to several official and unofficial sources, some improvements in the qualifications of tax inspection personnel, the use of electronic report submission, more clear criteria for report assessments, access to electronic written regulations are needed in order to reduce corruption, time and efforts in the processes. Some taxes, such as income tax, are still high which encourages both employer and employee to decrease the official salary rates. (Business Environment in Uzbekistan as Seen by Private Enterprises, 2009) The importance of networks Because the government initially controlled every resource, entrepreneurs must instead leverage their social resources (networks) to gain access to resources external to the firm (Manolova et.al., 2010). Thus, control advantage may prove to be more important than ownership advantage. Finally, because the institutional environment is still very much statecentered, entrepreneurs need to negotiate constantly with state officials whenever there is a new policy change affecting their business. Negotiating skills and political capital, therefore, Salomat Yuldasheva 82 may become important sources of competitive advantage in the context of transition economies (Manolova , 2010). The networks play an important role in entrepreneurship anywhere in the world. The networks play even more significant role in the entrepreneurial environment of Uzbekistan. Many people obtain the information about suppliers, products, customers by asking other stakeholders, players in the market, instead of searching for an official information which, in reality, does not exist. The credit from a bank cannot be obtained simply by going to the bank and applying for it. The networks of people and bribes accelerate the process. Normal entrepreneurs are even more challenged by the competition created by government elites. Using vast personal networks, (both domestic and abroad) formed through their working experiences, government elites have they own businesses as they acquired ample opportunities to buy any necessary raw materials and gain exclusive access to financing, market information, business infrastructure at low costs. With still underdeveloped market institutions and imperfect legal framework these “entrepreneurs” create unhealthy competition and in some cases monopoly by closing the cheaper supply chains and deliberately establishing high administrative barriers for the new entrants while working toward their own interests (this approach was named as “rent-seeking” by Krueger (1974)). A very good negotiation and communication skills with different inspectors are needed in order to fulfil the weaknesses of the existing legislation. As stated in “Business Environment in Uzbekistan as Seen by Private Enterprises” ( 2009), many ambiguities and contradictions in legislation enable inspectors to interpret legislation in light of their own interests. One example is due to delays in currency conversion, importers face exchange rate discrepancies. And although there are no stipulated procedures for reporting it, tax inspectors may interpret it as an offence. To correct that situation for the benefit of the firm, the entrepreneur either should have strong networks, or strong negotiation and communications skills. Or he needs extreme creativity to avoid the problems. Furthermore, existing “rules of the game” often push companies into violations. Even tax inspectors concede that there are numerous objective reasons related to current legislation and government regulatory practices that essentially force businesses to commit offences. The Role Of The Entrepreneurial Logic In Export Performance 83 Entrepreneurs and officers of inspection agencies often mention the following about the restrictions on cash and non-cash transactions of businesses: “There are restrictions for retail traders not to sell for bank transfer, and for wholesale traders not to sell for cash. But if an organization is willing to buy goods in my shop, where does it get the cash? Unwillingly, you have to break the law, either I sell the merchandise for bank transfer, or the buyer will obtain cash somehow”. (from Business Environment in Uzbekistan as Seen by Private Enterprises, 2009) “You cannot buy many goods for bank transfer. Where do I get the cash? That’s why we have to sell some of the goods informally”. (from Business Environment in Uzbekistan as Seen by Private Enterprises, 2009) The statements of entrepreneurs about the difficulty with timely withdrawals of cash from bank accounts that force businesses to partially hide their cash receipts: “In order to withdraw cash from the bank, you have to wait for at least a week. What if you need something urgently? We keep cash just in case we need to buy something for production needs.” (from Business Environment in Uzbekistan as Seen by Private Enterprises, 2009) Society and the invisible hand (Smith, 1776) can provide resources and incentives to promote entrepreneurial activities, but if inappropriate conditions prevail, then “entrepreneurs” will utilise these resources for personal gain at the cost of economic growth. Baumol (1990) thus argues that entrepreneurial individuals channel their efforts according to the quality of prevailing economic, political, and legal institutions. Accordingly, this institutional structure determines whether entrepreneurial efforts are channelled to productive or unproductive outcomes. Importantly, Sobel (2008) claims that productive entrepreneurship is the fundamental source of economic growth and wealth creation. Where institutions provide secure property rights, a fair judicial system, contract enforcement and effective constitutional limits (Sobel, 2008), this reduces the profitability of unproductive entrepreneurship, so that individuals are more likely to engage in new wealth creation. Thus, the decision to “entreprendre” in this approach is influenced by the rate of return or profit rate of alternative Salomat Yuldasheva 84 activities, which themselves are determined by the quality of political and legal institutions. Good institutions draw entrepreneurial efforts towards productive activities while maintaining higher rates of economic growth. (Minniti & Lqvesque, 2008) explain that new institutional economics substantiate the relationship between institutions and organizations first noted by North (1990). Throughout the described challenges in the environment, the entrepreneurial entrepreneurs of Uzbekistan manage to grow their businesses (that include both productive and unproductive entrepreneurship) and achieve considerable results both by local sales and exporting. However most of their entrepreneurial skills are spent on resolving the problems of inefficient systems, even so the number of businesses with high quality innovative products and services is increasing. Without networking and negotiation skills this could not be achieved. Lack of reliance on formal management, business education During the Soviet Union time there was no private sector, and therefore no education provided to learn how to run businesses. Therefore, those who graduated during the Soviet Union time, (those who are currently running big organisations, state banks, private businesses) do not possess with management, marketing, financial management education, although probably possess with high engineering or mathematical skills. After independence from the Soviet Union, in 1997 Uzbekistan revised its laws on education to begin the transition towards a system that would be more responsive to a demand-driven economy. Uzbekistan has made a major effort to rebuild the education system in the period after 1998. The period of compulsory education was extended to 12 years (ETF, 2010). The fundamental changes taking place in the labour market and employment in Uzbekistan – including development of new production technologies – requires the recruitment of qualified professionals. Taking into account the increasing role of small private business in the development of the economy, all curricula of vocational colleges and academic secondary schools now have an The Role Of The Entrepreneurial Logic In Export Performance 85 80-hour course on “Fundamentals of Business and Entrepreneurship”. This course was introduced on the basis of the syllabus developed by the International Labour Organisation. Several short-term courses of vocational training of adults have also been undertaken in cooperation with the Ministry of Labour and Social Protection (OECD Working Group on Human Capital Development in Central Asia, 2011). Although there has been progress in educational system reform, the process is far from finished. Vocational institutions are often small and widely dispersed, and not all are equipped with modern equipment. The quality of education remains a major concern and training programmes are not co-ordinated (ETF, 2010, OECD Working Group on Human Capital Development in Central Asia, 2011). The findings of World Bank survey (2013) show that for a region with relatively high and expanding educational attainment (as measured by the number of years of completed schooling due to the change in academic program in schools and colleges in Uzbekistan) and relatively high-quality education in the early years of schooling, a shortage of worker skills has emerged as one of the most important constraints to firm expansion. Employment trends in the region reflect this new reality: jobs have been shifting significantly from unskilled to skilled labour and the wages of highly skilled workers have dramatically improved over the past 20 years. This shift parallels an economic transition that has involved intensive enterprise restructuring as the country moved from centrally planned to marketbased economies. New skills have come into demand, as employment has been allocated away from declining industries and firms toward expanding ones. In addition, there has been a large-scale shift of jobs from agriculture and, to a lesser extent, industry towards the service sector. Research indicates that this change in demand has not been adequately met by an adjustment in the supply of skills, resulting in a kind of skills “mismatch” throughout the region. In fact, many modern firms in Eastern European and Central Asian countries view the lack of necessary skills among potential workers as a major impediment to their operations and development. These needed skills include not just the ability to apply knowledge and solve Salomat Yuldasheva 86 tasks, but also the ability to work as part of a team—just one example of the type of behavioural skills increasingly desired by employers. Workers in today’s economies are increasingly required to solve complex and unexpected tasks in their jobs, which involve fewer and fewer simple, predictable activities. In addition, workers must be able to master changing technologies and make sense of large amounts of information. According to the World Bank survey (2013) in countries as diverse as Croatia, Poland, Russia, Uzbekistan, and Tajikistan (listed in order of gross national income [GNI] per capita), there is a shortage of workers with professional or technical qualifications and a surplus of workers with basic skills. The same survey article indicates that although the education offered in many ECA countries is respectable for their level of income, it does not appear to be good enough (or of the right relevance) to meet the rising demand for skills in the region. Educational quality is not demonstrating reliable progress. It is not improving at the lower secondary level, a weakness that is probably mirrored at the upper secondary level (albeit with a lag). (The Demand for Skills in ECA, World Bank, 2013) As a result insufficient technical, managerial, and professional skills constrain profits of businesses. The recommendations by OECD EURASIA COMPETITIVENESS PROGRAMME were as following: “Within the education system of Uzbekistan, vocational education has a dominant position leading to enrolment rates that are considerably higher than in neighbouring countries. Social partner involvement is well developed, with a mechanism in place that provides for equal involvement of employers and trade unions. Despite these mechanisms, the involvement of small enterprises lags behind that of the other social partners. Their participation would contribute to the creation of programmes that are more applicable to the labour market’s needs, as the transition of the vocational education and training system in Uzbekistan remains incomplete and some outdated training schemes persist. The Role Of The Entrepreneurial Logic In Export Performance 87 Strengthening the database is another step towards the development of coherent vocational education and training policies. This includes regularly using analytical tools such as tracer studies with graduates and employer surveys to better match their respective needs. Evidencebased policy making is taking place to some extent. However, the collection of data through tracer studies and employer surveys would provide data for more sophisticated planning.” Lack of data and information SMEs in Uzbekistan face the informational deficits in a number of areas. First, there is a lack of adequate information on the national and foreign markets and on market opportunities prevailing there. In an IFC survey of 1500 SMEs in Uzbekistan it was found that the lack of information on demand conditions and customs regulations in foreign markets was two of the five most important obstacles to exporting . Another area where SMEs lack adequate information is legislation according to IFC (2002), and this is still true. This leads to not knowing their obligations and rights, with the negative consequences resulting from this. Moreover SMEs needs information on various areas of business, such as accounting, financial analysis, marketing. They need to know the trends in consumer behaviour, the availability of new suppliers, new programs for bank credits. The scarcity of the sources of information such as commercial portals, consumer databases, and international and local market surveys is the big obstacle to the daily operations as well as to strategic developments of businesses. The limited information about markets, consumers, competitors and supply change makes it a challenge to prepare business plans for bank loans. The limited information sources about bank loans reduce the chances to get the best suitable loans. Limited financial resources Limited financial resources is mentioned as one of the elements of the effectual space. Globally, Uzbekistan stands at 104 in the ranking of 189 economies on the ease of getting credit (Doing Business in Uzbekistan, 2015). Among Uzbek firms, external financing is the Salomat Yuldasheva 88 exception, not the rule. Uzbekistan is the country with both the highest level of internal financing for investments and the lowest level of banking financing in the region, see the figure 8, (Enterprise Surveys, Running a Business in Uzbekistan, 2011). There is a large financing gap between small business credit demand and the loans supplied by commercial banks. Although 94% of small businesses have an account at a financial institution, only 9.6% have outstanding credit at a financial institution. In 2014, total bank lending to small businesses was only 6.3% of GDP (Asian Development Bank, 2015) Figure 6: Bank Lending Source: Enterprise Surveys, 2011 Starting capital & high cost of financial loans are a major challenge for entrepreneurs. The banks are lending at very high rate of up to 18% which is very high and generally young talent have no confidence to take such high risks for any business. According to the findings of the survey of the World Bank (2009) the businesses are increasingly investing borrowed funds. Therefore there was an increase in the need for other forms of credit. One of these alternative forms of credit is microfinance. During the last decade Uzbekistan has taken significant steps in establishing the legal framework for the development of microfinance. (Development Focus, Issue 6, March 2012). Despite this, a comprehensive legal framework the microfinance sector has not yet realised its potential. The Role Of The Entrepreneurial Logic In Export Performance 89 The microcredit is provided to small businesses in non-cash form by commercial banks with preferential interest rates (2-12% annually). Such microcredit is aimed predominantly at small industrial enterprises, which represent only 8.2% of the total number of small businesses. Access to these services remains low, with microcredits constituting only 5-6% of the bank’s credit portfolio. (Development Focus, Issue 6, March 2012) Microcredits (loans) to private entrepreneurs and the public, provided by non-bank credit organisations, have higher interest rates (60-70% annually), but with easier access and in cash. In 2010 the share of non-bank credit organisations in the total microcredit portfolio of all institutes involved in microcredit activity in Uzbekistan rose to 48.9%. Credit unions in particular expanded rapidly, which in turn increased competition in the sector and thereby reduced interest rates. Credit unions became increasingly popular (between 2004-2010 the number of their participants increased by a factor of 15) and as such they emerged as significant financial actors. However, credit unions’ activity have been ended in 2011, and a growing demand for microcredit shifted onto microcredit organisations and pawn shops, raising the cost of services in the microfinance sector. Alternatively, bank products tend to target enterprises with profitable investments and sound collateral. Commercial banks view lending to small businesses to be costly and risky. The transaction cost of providing a microcredit loan is higher than for credit to a large enterprise. Small businesses often lack profitable projects with stable revenues, sufficient collateral, or credit histories. Banks need assurance that the owner of a small business will be able to repay the loan and that banks can earn a return on their investment. Collateral requirements are generally high for small businesses, at 146% of the loan amount, compared with 128% for large companies.( World Bank, 2011 ) Alternative sources of collateral and security such as future cash flows, business reputation, third parties, or group guarantees are rarely considered acceptable. Insufficient collateral limits the size of loans and constrains entrepreneurs’ access to larger loans for business expansion and capital investments. (The World Bank’s Enterprise Survey, 2010) Salomat Yuldasheva 96 Building on Effectuation theory and Institutional theory, we brought together specifications of an effectual space and compare them with ones of transition economies. As one of the contributions of this paper, we opened a new discussion area within the Effectuation theory by proposing that the ideal effectual problem space with high (Knightian) uncertainty, together with goal ambiguity and environmental isotropy is found in the transition markets. The discussion of uncertainties, stemmed from institutional settings and government regulations, through the lens of Effectuation theory is the first in the literature and this is our contribution to this field. According to Sarasvathy the effectual space forces to make effectual decisions in order to achieve better performance. Does this mean that entrepreneurs in transition economies use effectual logic in order to achieve success? Is the reason for rapid growth in the share of small and medium sized businesses in transition countries is due to the use of the effectual logic? Which entrepreneurial logic effectual vs. causal is more feasible in the transition economies? And how far the Effectuation theory and Institutional theories can be integrated together? These questions open new opportunities for further research. A special attention in our discussions was given to the effectual space in Uzbekistan. The uncertainties stemmed from the political, economic, social environment in Uzbekistan do not adjust exactly to the typical features of a transition economy, due to the specificities created by the particular set of policy decisions adopted during the first decade of Uzbek independence, the so-called ‘Uzbek Path’ (Gleason 2003). Each component of an effectual space was discussed in the current practices of entrepreneurs in Uzbekistan. The discussion of uncertainties, stemmed from institutional settings and government regulations, through the lens of effectuation theory is the first in the literature and this is our next contribution to this field. The discussion of a business environment in the Central Asian countries including Uzbekistan should be interesting due to the most rapid temps of growth of the share of small and medium sized businesses, while these countries rank in the lowest positions in terms of ease of doing business and in indexes of business and political freedom. Notwithstanding a high level of uncertainty this environment could be a good environment to start and run a business. There The Role Of The Entrepreneurial Logic In Export Performance 97 are several possible reasons for that: there are many unavailable products and services which are necessary for living and therefore big opportunities to run new businesses, the high level of unemployment and therefore increasing self-employment, lower competition from foreign countries due to the import reduction policies therefore easier business running without sophisticated marketing technologies, SME export support program which includes no tax and no obstacle policy for SMEs for their exporting activities as practiced by Uzbekistan, which encourage a growth towards exporting. If it is a good environment to run a business, then does uncertainty positively relate to the increase of the share of small and medium sized businesses sector? This question was answered in the next chapter by running a time series cross sectional analysis of fifty two countries using a mixed effects model. 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Washington DC. http://documents.worldbank.org/curated/en/1995/06/697240/lithuania-private-sectordevelopment World Bank, 1999 http://documents.worldbank.org/curated/en/282291468321230375/The-WorldBank-annual-report-1999 The Role Of The Entrepreneurial Logic In Export Performance 115 World Bank. 2002. World Development Report 2002 : Building Institutions for Markets. New York: Oxford University Press. © World Bank. https://openknowledge.worldbank.org/handle/10986/5984 License: CC BY 3.0 IGO. World Bank. 2011 https://siteresources.worldbank.org/INTWDRS/Resources/WDR2011_Full_Text.pdf Worldwide Governance Indicators, 2013 http://info.worldbank.org/governance/wgi/ World Bank survey (2013) http://knoema.ru/WBWGI2013/worldwide-governance-indicators-2013?action=download The World Bank’s Enterprise Survey, 2010 www.enterprisesurveys.org/ The Role Of The Entrepreneurial Logic In Export Performance 117 Paper 2 2. Does Uncertainty Matter? The Impact Of Uncertainty On The Share Of The Sector Of Micro-Small-Medium-Sized Enterprises Worldwide Abstract We proposed and tested a model of the effects of environmental uncertainty on the size of the sector of Micro, Small, Medium sized Enterprises (MSME) using a panel data from 53 countries. Our aim was to see the difference in the effect of uncertainties in transition vs. developed countries. We argued that in comparing data with different countries a special attention should be given to the type of economy concerned in each country and therefore its effect on the relationship between uncertainty and its MSME sector size. In order to capture differences in individual countries and group of countries we used mixed effects regression model. We predicted that the effect of the level of uncertainty would not be significant and that other country specific factors would lead to the increase in size of MSMEs even in highly uncertain environments. The data provided supports for the importance of individual characteristics of each country or groups of countries and that the uncertainty level itself cannot explain the size of MSME sector. The data demonstrated that notwithstanding a high level of uncertainty some countries were able to achieve strong growth in MSME sector in the given period of time. Moreover some other unobserved factors brought to the decrease in MSME sector size in the countries with lowest level of uncertainty. Salomat Yuldasheva 118 2.1 Introduction Micro, Small and Medium enterprises (MSMEs) are considered the backbone of an economy. These companies represent an essential source of economic growth . (Eurostat) Small enterprises are very important in promoting competitiveness and to bring new products or techniques to the market. According to the Organization for Economic Cooperation and Development (OECD), MSMEs represent more than 95% of enterprises and ensure 60-70% of the jobs. The countries with a bigger income per capita tend to have a larger number of registered companies for 1000 persons. The MSMEs have a direct effect on GDP growth. (Dalberg, 2011) For policy makers it is a key question to foster the growth of MSMEs and accelerate the employment generation since small and medium enterprises are the biggest contributors to the employment of labor from a country. A study (Meghana et al., 2011) made on 47745 firms from 99 countries during 2006-2010 proved this. In the evolution of all the transitional economies the Micro, Small and Medium Enterprise (SME) sector carries great hopes and great burdens. In our previous study we discussed about highly uncertain environments of transition economies, and that these uncertainties are due to the weaknesses of institutional settings in these economies. Therefore it is important to create, through the right institutional design, a free business environment to increase the number of successful MSMEs in transition economies. The comparative study of the effect of environmental uncertainties in transition economies vs other developed economies on the size of country’s MSME sector has not been explored yet, while there were some related research in general. We aim to contribute to this field by examining the actual effect of uncertainties on the size of MSME sector in countries, while analysing whether this effect is consistent through different economies. The empirical evidence on the effects of uncertainties on MSME sector size remains scarce. There are some relevant studies in the literature about the effect of uncertainty on individual MSME size, and not on the sector size, even these findings regarding to their effects are still appear inconsistent. For example, while West & Drnevich (2010) found that there were no significant The Role Of The Entrepreneurial Logic In Export Performance 119 effects for the interaction effect of firm size and uncertainty, Ghosal & Ye (2015) confirmed that the smaller firms are the ones most likely to be adversely affected by uncertainty due to their greater likelihood of being financing constrained. Prior research considered all the countries as equal when comparing the size of MSME sector in relation to the business environment. We consider that while comparing countries with different economies we should be careful and some individual and group characteristics should be taken into account. In order to address these gaps, we will first review the related literature and see in table the growth ratings of MSME sector for different countries with different economies. Subsequently the research methodology in measurement of transition specific uncertainty and the size of MSME sector will be explained in detail. Given the current state of the literature we selected Susjan & Redek’s (2008) measurement of uncertainty and adapted it to the countries in our data. A strongly balanced panel data with 53 countries which include countries with transition, emerging and developed economies will be explored by using mixed effects regression analysis. After a discussion of our analyses and results the conclusions will be highlighted. Finally, some limitations and suggestions for further research will be pointed out and some implications for policy makers will be provided. 2.2 Literature Review In the first chapter of this thesis we discussed about uncertainties focusing on the uncertainties occurring in the transition economies. It was concluded that transition economy can be called as Effectual space, the term first proposed by Sarasvarthy (2001) in her Effectuation theory. This is because both transition economy environment and a described effectual space environment share the same features such as high level of uncertainty, limited financial resources, the importance of entrepreneurial skills flexible to changes, the importance of networks, lack of reliance on formal management and business education, lack of data and information, the need for the constrained creativity. Salomat Yuldasheva 120 In the field of organization and management it is rarely found articles that not mentioned the phenomenon of environmental uncertainty (Samsami, et. al., 2015). Uncertainty always exists in some level. Therefore, one of the incorrect views is thinking that the world is quite certain and we can make accurate predictions about the future, or is completely uncertain and unpredictable. Ignoring uncertainty may lead to strategies that are not resistant against threats and cannot benefit from the opportunities arising from uncertainty. There is a big number of articles that analysed the negative effects of environmental uncertainty on SME business performance. Koh & Simpson (2005) showed that a different group of underlying causes of uncertainty significantly affects the product late delivery performance in manufacturing environments in SMEs. The negative effects of uncertainties in transition economies specifically were studied by Roman (1991) World Bank (1995), Roberts and Tholen (1998), Bohata and Mladek (1999), Slonimski 1999, Glas et al. (2000), Muent et al., (2001), Pissarides (2000), Roberts and Zhou (2000), Bartlett (2001), Bartlett and Bukvic (2001), Hashi (2001), Smallbone & Welter, (2001), Kaganova (2002), EBRD (2002), Aidis (2003), Radaev (2003), Aidis (2004), Alexandrova (2004), Pissarides (2004), Estrin & Mickiewicz (2010) and others. On the other hand, there are investigations that revealed strategies of using uncertainty for the development. In the first chapter, based on effectuation theory, we made a preliminary assumption of the fact that uncertainty in transition economies may motivate employees become more effectual rather than stopping the business or not starting it at all, and therefore they achieve success by relying more on effectual rather than on casual logic, although this should be proved by empirical studies. Meanwhile this point can be supported by the findings of several other studies, for example Amit, et al. (1993) found that entrepreneurs try to increase their profits in uncertain environments by being innovative, or Uzkurt, et al. (2012) found that there’s a positive relationship between market and technological turbulences and business innovativeness, where an increase in these turbulences will increase innovativeness. Organisations should therefore support innovativeness when facing turbulent environments in order to improve performance (Tsai & Yang, 2013) . Moreover McKelvie, et al., (2011) found that the type of uncertainty experienced influences the willingness to engage in entrepreneurial action differently and that the entrepreneur's expertise serve to moderate the The Role Of The Entrepreneurial Logic In Export Performance 121 relationship between uncertainty and action in counter-intuitive ways. Sawyerr & Peterson (2003) proved that the increased perceived uncertainty leads to a better firm performance through the increased internal networking, as they found that the higher perceived uncertainty leads to a more frequent internal networking. In the same vein Alvarez and Barney, (2005) found that high environmental uncertainty might create an opening for entrepreneurs to identify market opportunities that have gone unrecognized by potential competitors and thus creating a vehicle for entrepreneurial entry. Moreover if high uncertainty leads to reduced business activity, it may also increase unemployment, leading to more entrepreneurial ‘push’ — termed the refugee effect’ by Thurik, et al. (2008). In this study we would like to concentrate on two main questions. First, is to determine the relationship between environmental uncertainty and the (relative) size of the MSME sector, and the second is to study whether there is a difference in this relationship between transition economies and other developed economies. There is a need in the field to study this relationship in more depth since the findings on the effects of the uncertainty on the share of MSMEs is still inconclusive and mixed. The studies that focused on the effect of uncertainty or the effect of the environment attempted to compare all the countries at once without taking into account any specific characteristics of regions, countries or even groups of countries. This has led to ignore the fact that the MSME sector in transition economies is still new and therefore they have less share by MSMEs comparing to the one in developed economies and not necessarily due to the impact of environment. Hence there was no study conducted to compare the transition economies and developed economies in terms of how their uncertain environments impact on the increasing number of MSMEs. This can be seen in the Table 1, where the ranking demonstrates the pace of the growth of MSME sector in each country during the period from 2000 to 2008 year. (The panel data on the country information of MSME sector size was taken from IFC´s web page, and the balanced information was only available for this period of time). Looking at the table, the overall picture gets even more confusing, because most of the growth has occurred in the countries with transition economies of the Former Soviet Union which are usually considered as highly uncertain environments for doing business. See Appendix 1, for the table with growth rate of MSME sector in countries for the period 2000-2008. Salomat Yuldasheva 128 Soviet transition economies and specifically Central Asian countries. For example, the government intervention and corruption factors in these countries are still very high therefore the weight for these components given in our index is highest due to its impact on everyday activities of entrepreneurs. On the other hand a measurement of the labour regulation is not included since this aspect is under revision by the International Organization (e.g. the issue of the absence of minimum wages in some high performing countries). Figure 1 presents the composition of Uncertainty index, and the following Table 1 presents the weightings for each component. Figure 1: The Components of a Transition Specific Uncertainty Institutional and systematic transformation - Property rights - Banking and finance - Business Regulation - Tax Burden - Monetary policy Heritage Foundation Political and Social circumstances - Political rights - Civil liberties Freedom House Legacies of the socialist system - Government intervention - Corruption Heritage Foundation UNCERTAINTY The Role Of The Entrepreneurial Logic In Export Performance 129 Table 1: Components of the Index of Uncertainty and Respective Weights Main sources of uncertainty Indices used to measure source of uncertainty Source Weight Cummulative weight (Sum=1 00%) Legacies of the socialist system Government intervention Corruption Heritage F. Heritage F. 0.15 0.15 0.30 Political and social Circumstances Political rights Civil liberties Freedom House Freedom House 0.5 0.5 0.10 Institutional and systemic Transformation Property rights Banking and finance Business Regulation (which includes entry barriers, tax system) Monetary policy (control of inflation, exchange rate) Fiscal problems (tax burden) Heritage F. Heritage F. Heritage F. Heritage F. Heritage F. Heritage F. 0.10 0.10 0.10 0.10 0.10 0.10 0.60 See the Table 3 in the appendix presented later in this chapter to learn about the components within the Index of Uncertainty, where it is described what government policy activities are involved in each referred component. Additionally see the Table 4 of the appendix 1 to see the level of correlations between the components of an index. Table 5 & 6 of the appendix 1 show the ranking of all the countries in terms of their level of uncertainty. Although the weightings of each component within an index have been adapted, playing with weightings by giving equal weightings for all the components also has generated similar rankings among the countries, see the Table 5 of the appendix 1. Therefore, while we give more weighting to some components that we consider more prevalent in the transition economies, we do not change the ranking sequence to a great level and at the same time we are able to stress the most problematic areas in the institutional environment of transition economies. data with a data of micro, small and medium enterprises in the economy of each country taken from International Finance Corporation (IFC) of a World Bank Group. The actual database contained a highly unbalanced data for different countries. In order to have more robust results the data for each country was strongly balanced to nine-year period from 2000 to2008. For the purpose of our Salomat Yuldasheva 130 study this period was sufficient, as the transition economies from the former Soviet bloc have started their transition process far enough back in 1991, while other transition economies in Eastern Europe have started their transition more earlier, and the period from 2000 to 2008 is a good time period to see the change in the growth of SME sector and the level of uncertainty in those countries since till 2000 countries have already established and experienced the relevant policies to support and manage a business sector. As a measurement for the size of SME sector was taken the Share of Employment created by MSMEs – Micro, Small, Medium sized businesses. One limitation of this sample is that the data is available only till 2008 year, while it would be more valuable to have a larger and more recent period of time. The third stage was to categorise the countries into several groups. The sample size consists of 53 countries that have information about their size of MSME sector and their business environment indicators for the period from 2000 to 2008 period. In the original database the countries are grouped based on their income level, however for the purpose of our work we categorised countries in terms of their type of economy, transition vs. not transition vs. what type of transition. There are several reasons for such grouping. First of all, the aim of this paper is to assess the impact of environmental uncertainty, which involves elements of a transition specific uncertainty on the size of MSME sector. For this we need to consider the types of economies in comparison. Second reason is that the countries of Former Soviet union, for example, have their common characteristics and they are not comparable with Eastern European countries that are also in transition process, or the countries of Central Asia have their own common factors that are similar to each other but not to other countries. In the same way, Eastern European Countries have their own similar attributes, such as being in European zone and having the transition process started in the same period. Moreover, there are many countries within the former Soviet Union and there are some differences within them that have to be considered as well. Russia was the ruler of the rest of former Soviet Union. Therefore, Russia has already had its infrastructure, financial, natural, intellectual resources from the beginning of the transition process. Therefore Russia could be considered in a similar way as other countries in transition such as China for example. In contrary, other countries of the former Soviet Union were all dependent on Russia or any other neighbouring countries for those resources. None of these countries were self sufficient and therefore they had big troubles in the initial years after the collapse of the union until they could provide The Role Of The Entrepreneurial Logic In Export Performance 131 themselves with first necessary products. Additionally, Central Asia within the former Soviet Union has many common characteristics that are not shared with the rest of countries in the former Soviet Union, such as location in Asia, having the same cultural roots and similar language. As stated in Doing Business 2017: “Countries of Central Asia share more than just geography; they also share a similar legacy and, more importantly, a common vision for the future”. These countries also share similar weather climates and all rely on agricultural sectors for fruits, vegetables, wheat and in some of them on cotton. And because of this the current institutional environments of these countries are also similar. Therefore we insist on having Central Asian countries as a separate group within transition economies. Within Central Asia Turkmenistan has the closest economy and therefore in many databases the data for this country is not available as happened in our case. Hence Turkmenistan is omitted in our Central Asian group. Generally we have 6 groups of countries in our panel data. See the Table 2 for groupings: Table 2: Country groupings Developed economy (22 countries) Transition FSUCA – Former Soviet Union Central Asia and Caucasus (4 countries) Transition FSU – Former Soviet Union (8 countries) Transition EEA – Eastern European Countries (7 countries) Other Transition economy (4 countries) Emerging economy (7 countries) Australia Austria Canada Switzerland Germany Denmark Spain France UnitedKingdom Greece Ireland Iceland Italy Japan Korea,Rep Malta Norway NewZealand Singapore Portugal Sweden UnitedStates Kazakhstan KyrgyzRepublic Tajikistan Uzbekistan Armenia Azerbaijan Belarus Estonia Georgia Lithuania Latvia Moldova Ukraine Albania Bulgaria CzechRepublic Finland Hungary Poland SlovakRepublic BosniaandHerzegovina China HongKongSAR,China Croatia RussianFederation Argentina Brazil Algeria Indonesia Jordan Philippines Turkey Grouping based on the transition vs not transition type of economy was proved better than the grouping based on the income level with its better R2 and coefficient significance levels in the results of the panel data OLC, LCDV, Mixed effect models. Salomat Yuldasheva 132 The forth stage was a review of a literature. This is to find other factors contributing to the size of MSMEs apart from uncertainty level, and to keep control of these factors. The Table 2 in the appendix 1 lists the correlated variables with the size of MSME sector based on the findings of previous studies. We selected as a correlated variable GDP Per Capita (current $) on the basis of the study of Ayyagari, et al., (2007). After the inclusion of the variable GDP Per Capital other variables included in the table were not used due to multicollinearity with either GDP Per Capital or with the components of the Index of Uncertainty. Table 3: Correlation between MSME and GDPPerCapital in $ MSMEem~l GDPPer~S MSMEem~l 1.0000 GDPPer~S 0.2393 1.0000 In the fifth stage In the sixth stage we conducted Fixed effects and Random effects analysis and tested using Hausman Test. Hausman Test for the models with control variables approved the suitability of Random effects model, while Hausman Test for the models without control variables favoured for Fixed effects model. The process is explained in the section below and The Role Of The Entrepreneurial Logic In Export Performance 133 underlining reasons for not selecting neither Fixed effects model nor Random effects model are presented. In the seventh stage we performed a Mixed effects model using a two level model. Mixed effects regression is a more sophisticated approach that can incorporate individual growth characteristics in a single model, which simultaneously estimates individual country curves and a sample average curve (Goldstein, 2010). Mixed effects consist of fixed effects (i.e., average parameter values for the entire sample) and also random effects that are different for each group or even each country. The mixed-effects model is usually used when data is clustered in some manner, as in this paper since there are developed economies, emerging economies and transition economies. Moreover transition economies are clustered within different regions based on their recent histories. Variables Table 3 of the appendix 1 provides a complete description of all the variables utilized in this study. The dependent variable ‘MSMEemploymenttotal’ is the share of the MSME employment in the total labour force in private sector (MSME includes microenterprises). The independent variables are Index of Uncertainty - UnCertaintyIndex, and this variable includes in itself component variables: Property rights, Corruption, Taxes, The intervention of a government, The regulation of a business, Monetary policies, Availability of finance, Civil liberties, Political rights. The Index of Uncertainty can also be called as the Index of Certainty, because in our data, the higher value of the index represents the more stable and certain environment. In other words the higher indicator means a lower uncertainty. All components of the index are also calculated in the same manner, the higher indicator represents the better environment. Gross Domestic Product per capita is utilized as a control variable (GDPPerCapitalcurrentUS). The types of economies are dummy variables employed in LCDV (economytype1 economytype2 economytype3 economytype4 economytype5 economytype6) and in a Mixed Effect model (countrytype). Salomat Yuldasheva 134 Table 4: Summary statistics of the utilized database Variable Observations Mean Standard Deviation Minimum Maximum MSMEemploy~l 477 45.18181 19.39644 2 99.4 UnCertaint~x 477 64.60246 11.87863 32.22 92.76786 GDPPerCapi~S 477 17565.62 17733.67 139.1 87646.3 PropertyR~10 477 60.38784 25.29047 10 90 Corruption~1 477 52.96017 28.01576 10 240 TaxBurden~10 477 69.06331 14.42354 29.8 94.194.1 Government~r 477 55.94927 24.1322 0 94.1 BusinessRe~o 477 70.19203 14.97094 39.2 100 MonetaryP~10 477 75.6239 14.55262 0 100 Bankingand~o 477 63.29057 21.14646 10 91.6 Calculated~s 477 77.26864 23.96264 14.28571 100 Calculated~t 477 77.71788 29.35267 14.28571 100 The choice of the fifty three countries under investigation depends on the availability of data on MSME sector size, political and civil freedom for each country in both databases (International Finance Corporation (IFC) and Freedom House). Table 4 of the appendix 1 presents correlations of all the variables including the components of an Index of Uncertainty. GDPpc is highly correlated with almost all the variables. It is very interesting to notice that two components of the index Tax Burden and Government Regulation are negatively correlated with the size of MSME sector, GDP per capita and other components. This means that even in the countries with high MSME sector and high GDP per capital there is a high tax burden and excessive government regulations. A significant degree of correlation among most of the independent variables does not create a problem, because we are dealing with one single composite index with all these components combined. As stated earlier, first the relationship between uncertainty level and the size of MSME sector is studied in each identified group, in order to see how the role of uncertainty changes based on the type of economy. An important aspect to analyse before proceeding with the estimation and interpretation is to check for the presence of heteroscedasticity. A Breusch-Pagan test for Heteroscedasticity was conducted and consequently the results provided evidence against heteroskedasticity in the model that are separate for each group. This means that the reported standard errors are reliable for OLS model for each group of economies. The econometric model for the individual regressions is the following: The Role Of The Entrepreneurial Logic In Export Performance 135 MSME = α0 + α1 UnCertainti + α2 GDPPerCapi + u Where UnCertainti represent in turn the uncertainty level for each of the six economies used in this paper to describe the business environment. However LCDV model with all the groups included has a heteroscedasticity problem and the results of Breusch-Pagan test favoured a random effect models to OLS or LCDV models when analysing all the countries and economies in one model. The detailed presentation of the results is given in the next section. The paper will proceed to apply a linear regression by OLS for each group of countries separately, then the mixed effect model will be applied for all the countries analysed in one model. The results will be presented with Likelihood Ratio Test (LR Test) estimations that provide evidence towards a mixed effect model than OLS model. 2.4 Results and Analysis Following to identification of the index of uncertainty the first intention was to see where each country ranks according to its average level of uncertainty and see where each country ranks in average growth intensity of its MSME sector. As stated in the methodology part, in order to avoid the big changes in data by relying on our weightings for each component of the index of uncertainty, we demonstrate in the Table 5 of the appendix 1 the fact that the rankings by countries do not change too much when we give equal weightings for each component. It is known that the more developed countries have bigger share of MSME sector due to the longer period of the development of this sector. However it is useful to see where each country ranks in terms of its speed of growth of MSME sector. It should be noted that the actual share of MSMEs in employment is high in developed economies and the above indicators are of the growth rates in MSME employment. Salomat Yuldasheva 136 The higher rank in the uncertainty index means a better environment with lower level of uncertainty. According to the above table it is seen that mainly developed economies rank high in terms of their business environment and transition economies especially those from former Soviet bloc rank the lowest. This demonstrates that the environment in transition economies is highly uncertain and lack of business freedom especially those countries from the former Soviet Union. On the other hand, at the right sight of the table, the growth speed of MSME sector is high in the transition economies especially in those that were ranked as highly uncertain environments. The developed economies have suffered a downturn and instead of the increase the MSME sector size it decreased dramatically in the period from 2000-2008 while having a better environment for doing business. From this it can be assumed that the level of uncertainty does not always determine the growth in number and size of the small and medium enterprises. While improvements in business environment encourage growth by MSMEs, it seems that still high level of environmental uncertainty does not stop entrepreneurs from starting and growing businesses. he country has been listed as the top global reformer by the IFC/World Bank’s 2009 Doing Business report, with improvements in seven out of ten indicators of business environment reform. Azerbaijan moved far up the global rankings, from 97th place to 33rd , in the overall ease of doing business. After the recognition of importance of non-oil sector the country did best in order to increase the share of MSMEs which is seen from its growth rates in the above table. Several political journals issued in Azerbaijan stated that the country realised the importance of MSME sector and therefore concentrated on the increase of its size in the second decade after its independence in 1991. The Role Of The Entrepreneurial Logic In Export Performance 137 Table 5: The effects of Uncertainty on the size of MSME sector in different groups of countries. Variable Developed economies Transition economies in EEA Transition economies in FSU Transition economies in FSUCA Other transition economies Emerging economies Constant 51.90*** (10.14) 67.20*** (15.79) -27.93*** (7.059) 135.0*** (20.60) -1.550 (11.61) 9.336 (33.38) UnCertaint~x 0.172 (0.146) -0.337 (0.265) 0.859*** (0.129) -2.167*** (0.432) 1.367*** (0.253) 0.712 (0.557) GDPPerCapi~S -0.000313*** (0.0000746) -0.000182 (0.000174) 0.00138*** (0.000343) 0.00215 (0.00156) -0.00257*** (0.000405) -0.00283* (0.00118) Adjusted R2 0.074 0.083 0.635 0.406 0.466 0.105 Components of the Uncertainty Index: Developed economies Transition economies in EEA Transition economies in FSU Transition economies in FSUCA Other transition economies Emerging economies Constant 34.94 (20.69) 56.25 (31.19) -9.049 (12.56) 197.8** (56.37) 21.53 (24.43) -15.07 (32.94) PropertyR~10 -0.0273 (0.120) 0.565** (0.174) 0.289 (0.150) -2.797 (1.688) -0.0307 (0.208) 0.426 (0.214) Corruption~1 0.224* (0.0896) -0.0378 (0.0499) 0.106 (0.186) -0.0988 (0.280) 1.004** (0.279) -0.123 (0.371) TaxBurden~10 0.659*** (0.122) -0.154 (0.283) -0.152 (0.156) 1.027*** (0.182) -0.0707 (0.245) 0.122 (0.352) Government~r -0.148 (0.0777) 0.211 (0.171) -0.108 (0.0925) -0.523** (0.175) -0.0626 (0.140) 0.711* (0.293) BusinessRe~o -0.160 (0.126) -0.197 (0.229) 0.126 (0.132) -0.772* (0.281) -0.147 (0.321) -0.552 (0.368) MonetaryP~10 -0.0632 (0.126) 0.00538 (0.106) 0.0301 (0.0954) -0.413 (0.222) 0.347* (0.134) -0.155 (0.189) Bankingand~o -0.0806 (0.0684) -0.140 (0.119) 0.130 (0.0809) -0.105 (0.102) 0.153 (0.0867) 0.0860 (0.145) Calculated~s -0.589** (0.184) -0.224 (0.280) 0.635** (0.189) -1.298** (0.411) 0.472 (0.319) 0.430 (0.450) Calculated~t 0.628*** (0.173) 0.0682 (0.251) -0.263 (0.135) -0.0259 (0.564) -0.437* (0.205) 0.0452 (0.285) GDPPerCapi~S -0.000280*** (0.0000824) -0.000524* (0.000239) -0.000153 (0.000503) 0.00173* (0.000832) -0.00318*** (0.000605) -0.00205 (0.00155) Adjusted R2 0.230 0.318 0.730 0.862 0.696 0.634 Number of countries 22 7 9 4 5 6 Number of observations 198 63 81 36 45 54 Note: Standard errors in parentheses * p<0.05, ** p<0.01, *** p<0.001 In the first half of the table 12 the R2 for the Former Soviet Union countries including for Central Asian countries (FSUCA) and for other transition countries is high (from 0.406 the lowest and 0.635 the highest). The R2 for developed countries group and Easter European Salomat Yuldasheva 144 uncertainty is again not significant. Coefficients of different economies are negatively related to their size of MSME sector. One of the limitations of this model is that, Fixed effects analysis usually omits any type of control variable, but Random effects analysis considers all the control variables. Some researchers may argue that in this case we are comparing two different models in Hausman Test and therefore they might criticise the validity of using Random effects model and its findings. Therefore, we decided to find a more complex model that accounts for different types of economies. Our panel data consists of multiple levels, all the countries are nested within different groups of economies, and the economies are nested within individual countries. We used a Mixed Effects method, which considers these factors simultaneously. Mixed effects regression was found as a more sophisticated approach that can incorporate individual/group characteristics in a single model, which simultaneously estimates individual/group curves and a sample average curve (Goldstein, 2010) while conventional general regression provides a single equation or growth curve for an entire sample and does not consider differences in change between individuals or groups. In addition, mixed effects models can incorporate exposure variables in the same way conventional regression models can (Goldstein, 2010). Due to the hierarchical nature (countries are nested in groups) of our time-series, cross sectional data the mixed effect was found the most suitable model. The Mixed effect model is an improvement to the conventional regression model because it allows any or all of the parameters to take different values for each group and each country (Baxter-Jones and Mirwald, 2004). Such parameters are described as having mixed effects because they consist of fixed effects (i.e., average parameter values for the entire sample) and also random effects that are different for each group and each country with the groups. Especially it was seen from the previous table the R2 is very low for the developed countries in OLS model, which means the uncertainty level information itself does not make much sense in this group, while the R2 for other groups using the same OLS model is much higher. This demonstrates that the independent variables themselves cannot explain the complex relationship and that some country-specific factors affect to the relationship between the independent and dependent variables. Mixed effect model takes into consideration these types of group specific and country specific factors when regressing. The Role Of The Entrepreneurial Logic In Export Performance 145 2.5 Mixed Effect Model The mixed-effects model is usually used when data are clustered as in our data. Linear mixed models are a generalization of linear models, and are called “mixed”, because the β’s are a mix of fixed parameters and random variables. A fixed coefficient is an unknown constant of nature. A random coefficient is one which varies from sample of groups to sample of groups. The random β are not estimated, though they can be predicted. The change in the level of uncertainty and its impact on the growth in MSME sector are not fully captured by the fixed effects model, which assumes that the same intercept and slopes characterise all the fifty two countries in this analysis. The usual fixed effects model would look like: Yi = β0 + β1 1 X1i + β 2 X2i + β 3 X3i + Ɛ i However we should acknowledge that we have countries with different economies and if we believe that there are differences between economies, we should include this in the model. Our model is estimated using a random slope framework as explained in equation below: MSMEijt = β0 + β1Uncertijt + β2GDPPerCapijt + U0i + U1Uncerti + U0j + U2Uncertj + Vt + Ɛijt Here, the i represents the subgroup “economytype” and j represents the country within each subgroup. The t represents time measured in years. The β0 is intercept; β1, β2 are fixed unknowns, U0i is an intercept for the subgroup “economytype” and U0j is an intercept for the country. U1, and U2 are random unknowns. The t represents time measured in years, Ɛ ijt is a residual of i, j, t variables. The results of the likelihood ratio test (LR test) shows that we were able to reject the null hypothesis that means the random intercept model is nested in the random coefficient model (the p-value of the LR test is 0.0000). Therefore we used two level nested model which includes not only random intercept but also random slope model. In a Stata command it looks like: Salomat Yuldasheva 146 mixed MSMEemploymenttotal UnCertaintyIndex GDPPerCapitalcurrentUS || _all: R.Year || countrytype: UnCertaintyIndex, cov(uns) || countrynumbers: UnCertaintyIndex, cov(uns) The countries of our data are nested within regions with similar economy types (variable countrytype), and therefore in the model, as it is seen, there are three parts: fixed, a random slope for countrytypes and a random slope for individual countries. There exist random effects not only at the level of economy types but also at the smaller level of each individual country. The following analysis specifies random intercepts and slopes on predictor Uncertainty index for each economy group and for each country. In general when fitting random slope models, it is advised to use the unstructured covariance than the independent variance, where it can be a correlation between the slopes and the intercepts. The ending of the Stata command with cov(uns) specifies the use of unstructured covariance. We applied the LR test to determine the best covariance structure for our model (restricted vs. unstructured). The LR test result shows that Prob > chi2 is less than 0.05 in all specifications which means that the unstructured model is more efficient compared to the restricted model and that random effects are correlated. Hence we apply the unstructured model. Because we want the year effect to be the same across all countries and group of countries, and not nested within countries and group of countries, we fit the model crossing years with countries and with groups of countries. (in Stata command: _all: R.Year; in the equation: Vt ). The likelihood ratio tests (LR test) showed that the full model written above fits significantly better than the model which omits one of the predictors or nested levels. The positive relationship between the level of the certainty in the environment and the size of MSME was found in several previous papers. However the previous investigations mainly used ordinary least square (OLS), least square dummy variable (LSDV) methods that take into account only the fixed part of our model. The developed countries have a long term established MSME sector and the highest level of certainty in their business environments. On the other hand the transition economy countries have a relatively new MSME sector and very high level of uncertainty. Therefore when all the countries are assessed ignoring their The Role Of The Entrepreneurial Logic In Export Performance 147 individual conditions, the results demonstrate that the level of uncertainty determines the size of the MSME sector. Our mixed effects empirical results (see table 7 below) show that the size of the MSME sector is positively affected by the level of environmental certainty with point estimate of 0.335 (table 7). However this result is not statistically significant. GDP Per Capita’s effect is negative and near to zero although with statistical significance. This means that the countries with lowering GDP Per Capita are achieving the growth in MSMEs. In a fixed part of our mixed effect model the positive relationship between the certainty level and MSME sector size is statistically not significant. The random effects estimations by the groups of economies demonstrate that the relationship between the uncertainty and MSME sector size differs in different economies. When considered total both fixed and random effects the Eastern European transition economies have a negative relationship between environmental certainty and the level of MSME sector. Although the environment has been improving dramatically in these countries the share of MSME in the employment somehow decreased during the period from 2000 to 2008. Similarly developed economies have a negative relationship between environmental certainty and the level of MSME sector both in random effects and random + fixed effects. On the other hand, although the environment did not improve very much in the countries of the former Soviet Union the effect of a little improvement was highest on the share of MSME with point estimate 0.80. Similarly the strong positive relationship, for a small amount of improvement in business environment, is seen in Central Asian and in emerging economies with point estimate 0.78 and 0.67 respectively. The uncertainty level coefficient, based on each country´s random effects, (table 8) demonstrates that there is no consistency. Many developed countries experienced decrease in the MSME sector while having the highest ranks in business and political freedom measured by the uncertainty index. That means that environmental uncertainty is not the only determinant of the level of MSME. The high level of uncertainty could not stop the growth in size of MSMEs in many countries as it was expected. Salomat Yuldasheva 148 Table 6: The estimation of the effect of the Uncertainty level on the size of MSME sector MSMEemploy~l UnCertaint~x 0.335 (0.234 ) GDPPerCapi~S -0.000406*** (0.0000793) _cons 28.65 (17.45) t statistics in parentheses * p<0.05, ** p<0.01, *** p<0.001 See the appendix 2 for the full table of the mixed effects estimations. Table 7: Random deviations and random intercepts by the groups of the countries based on their economy type (dependent variable: The size of MSME sector measured by the share MSME employment in the total employment by private sector). The type of the country Random deviations of the Uncertainty index ( U1) Random + fixed effect of the Uncertainty index (Total effects, random intercept – (β1+ U1) 1. Developed economies -.3409831 -.0061368 2. Emerging economies .3307614 .6656077 3. Transition economies -.275893 .0589533 4. Transition economies in EEA -.6278453 -.2929991 5. Transition economies in FSU .4643709 .7992172 6. Transition economies in FSUCA .4495892 .7844355 Figure 2: Chane in 1% of MSME size, per 1% increase in the level of certainty -.5 0.5 1 developed emerging transition transitionEEA transitionFSU transitionFSUCA Change in % MSME size, per 1% increase in the level of certainty The Role Of The Entrepreneurial Logic In Export Performance 149 Table 8: Random deviations and random intercepts by each country (dependent variable: The size of MSME sector measured by the share MSME employment in the total employment by private sector). Country Random deviations of the Uncertainty index (U2) Random deviations of the Uncertainty index ( U1) Random + fixed effect of the Uncertainty index (Total effects, random intercept - β1+ U1+ U2) 1. Albania -.1556078 -.6278453 -.4486068 2. Algeria -.104609 .3307614 .5609987 3. Armenia .0208981 .4643709 .8201153 4. Australia -.1181092 -.3409831 -.1242459 5. Austria -.0056704 -.3409831 -.0118072 6. Azerbaijan .0638686 .4643709 .8630859 7. Belarus -.0399543 .4643709 .7592629 8. Bosnia and Herzegovina .0448311 -.275893 .1037843 9. Brazil .0599429 .3307614 .7255506 10. Bulgaria -.0595791 - .6278453 -.3525782 11. Canada -.0118278 -.3409831 -.0179646 12. China .0788324 -.275893 .1377856 13. Croatia -.0775363 -.275893 -.018583 14. CzechRepublic .0305447 -.6278453 -.2624543 15. Denmark .0675021 -.3409831 .0613653 16. Estonia .0375817 .4643709 .8367988 17. Finland -.076408 -.6278453 -.3694071 18. France -.0804084 -.3409831 -.0865452 19. Georgia -.1783231 .4643709 .6208941 20. Germany -.1172752 -.3409831 -.123412 21. Greece -.0343854 -.3409831 -.0405222 22. Hong Kong SAR, China .0342793 -.275893 .0932325 23. Hungary .0309217 -.6278453 -.2620774 24. Iceland .1916202 -.3409831 .1854834 25. Indonesia .0878256 .3307614 .7534333 26. Ireland -.0441925 -.3409831 -.0503293 27. Italy -.0043209 -.3409831 -.0104577 28. Japan .0872654 -.3409831 .0811286 29. Jordan -.0439225 .3307614 .6216851 30. Kazakhstan .0351445 .4495892 .81958 31. Rep. Korea -.0664791 -.3409831 -.0726159 32. Kyrgyz Republic -.0441449 .4495892 .7402905 33. Latvia .0687769 .4643709 .8679941 34. Lithuania -.1159818 .4643709 .6832353 35. Malta .0923529 -.3409831 .0862161 36. Moldova .0109337 .4643709 .8101509 37. New Zealand .030131 -.3409831 .0239942 38. Norway .0450733 -.3409831 .0389365 39. Philippines .0566819 .3307614 .7222896 40. Poland .0005212 -.6278453 -.2924778 41. Portugal .026339 -.3409831 .0202022 42. Russian Federation -.0925915 -.275893 -.0336382 43. Singapore .0217125 -.3409831 .0155757 44. Slovak Republic -.0484618 -.6278453 -.3414609 45. Spain .0160993 -.3409831 .0099625 46. Sweden -.0140953 -.3409831 -.0202321 47. Switzerland .2016389 -.3409831 .1955021 48. Tajikistan .1010257 .4495892 .8854612 49. Turkey .0351005 .3307614 .7007082 50. Ukraine .0849074 .4643709 .8841246 51. United Kingdom -.1181066 -.3409831 -.1242434 52. United States -.0155707 -.3409831 -.0217075 53. Uzbekistan .0052093 .4495892 .7896447 The Uncertainty index for Uzbekistan grew from 34 in 2000 to 46 in 2008. Although 46 is one of the lowest indicators the share of MSMEs for this period have increased by 47%. The Salomat Yuldasheva 150 ranking of its business environment within 53 countries in the database is on the 52nd level, which means it is one of the worst environments for the conduct of a business comparing to other countries in the database, while the ranking in terms of the growth in the share by MSMEs stays in a good 10th position in the given period of time. If we look at the United States’ case for the comparison, the ranking of its business environment within 53 countries in our database is on the 8th level, which means it is one of the best environments for the conduct of a business. The Uncertainty index for United States indicates on average 80 in the period from 2000 to 2008. Even so, the share of MSME sector decreased by 6% for the given period in our study, perhaps due to some other economic or political factors.(see table 7, 8) Figure 3: Changes in the environment Changes in the environment and MSME share in Uzbekistan Changes in the environment and MSME share in United States The mixed effects analysis revealed for Uzbekistan: a random effect of the country : 0.0052093, a random effect related to a type of economy – 0.4495892, and total random effects + fixed effect = 0.7896447. The positive coefficient demonstrates a positive relationship between the uncertainty level and the share by MSMEs. The same analysis for United States, similar to other many developed economies, showed: a random effect of the country: -0.0155707, a random effect related to a type of economy: -0.3409831, and a total random effects + fixed effect = -0.0217075. The negative coefficient means the negative relationship between the uncertainty index and the share by MSMEs. While the effect of an environment in the first case is very strong, in the second case it is near to zero. While in the 30 40 50 60 70 2000 2002 2004 2006 2008 52 MSMEemployment (%total) (Un)CertaintyIndex Year Graphs by group(B) 40 50 60 70 80 2000 2002 2004 2006 2008 51 MSMEemployment (%total) (Un)CertaintyIndex Year Graphs by group(B) The Role Of The Entrepreneurial Logic In Export Performance 151 lowest ranked environment the increase of MSMEs share is huge, the same indicator is negative in the highly ranked environment. 2.6 Conclusions and recommendations for future research In this chapter we studied the effect of environmental uncertainty on the size of MSME sector in a sample of 53 countries. In doing so we considered the type of the economy of each country. We grouped the countries into several types: Central Asian and Caucasian transition economies, European part of the Former Soviet Union transition economies, other transition economies, the countries which fall into class of emerging economies and developed economies. The assessment of a business environment in the transition economies should be interesting due to the most rapid temps of growth of the share of small and medium sized businesses, while these countries rank in the lowest positions in terms of ease of doing business and in indexes of business and political freedom. Notwithstanding a high level of uncertainty this environment could be a good environment to start and run a business. There are several possible reasons for that: there are many unavailable products and services which are necessary for living and therefore big opportunities to run new businesses, the high level of unemployment and therefore increasing self-employment, lower competition from foreign countries due to the import reduction policies therefore easier business running without sophisticated marketing technologies, SME export support programs which include no tax and no obstacle policy for SMEs for their exporting activities as practiced by Uzbekistan, which encourage a growth towards exporting. If it is a good environment to run a business, then does uncertainty positively relate to the increase of the share of small and medium sized businesses sector in these economies? This question was answered in this paper by running a time series cross sectional analysis of fifty two countries using a mixed effects model. The countries were compared to see the relationship between the environmental uncertainty and the size of SME sector. They were grouped based on their recent economic histories and similarities in institutional conditions. Previous study in the field which studied the relationship or impact of the business environment on the size of small and medium sized businesses sector found that there is a negative effect of uncertain environment on the size of Salomat Yuldasheva 152 MSME sector, and that the improvement in the business environment will lead to a greater size of the sector. However, these studies mainly used ordinary least square, or least square dummy variable or other type of regression analysis that assume that the same intercept and slopes characterise all the fifty two countries in the analysis. Although these estimations show the positive relationship between the level of certainty and the size of MSME sector, it is early to conclude that uncertainty prevents the growth of MSMEs. Countries with developed economies usually have a bigger size of MSME sector because of a long history of their development period of MSME sector. These countries have a good and stable business environment. While MSME sector in transition countries is relatively new, and therefore did not have enough time to reach its potential. However when the growth rates are analysed, the transition countries have the higher rates of growth in MSME sector. Our main contribution in the analysis of the impact of an environment on the size of MSME sector was the use of mixed effects analysis usually used when data is clustered. The Mixed effect model is an improvement to the conventional regression model because it allows any or all of the parameters to take different values for each group and each country (Baxter-Jones & Mirwald, 2004). Because the mixed effects model include in itself both fixed effects, which is measured by ordinary least square models and also random effects model our results are both confirming and not confirming the results from previous studies. In a fixed part of our mixed effect model the positive relationship between the certainty level and MSME sector size was identified. However this was not statistically significant due to the differences in individual countries and economies. The random effects estimations by the groups of economies and by countries demonstrated that the relationship between the uncertainty and MSME sector size differs in different groups of countries. Many developed countries experienced decrease in the MSME sector while having the highest ranks in business and political freedom measured by the uncertainty index while the high level of uncertainty could not stop the growth in size of MSMEs in other countries with transition economies. Particularly in the countries with economic transition it can be seen that the growth level of the share by SMEs is faster than the improvement speed of the The Role Of The Entrepreneurial Logic In Export Performance 153 environment towards more certain environment. In the countries of the former Soviet Union the effect of a little improvement was highest on the share of MSME with point estimate 0.80. Similarly the strong positive relationship, for a small amount of improvement in business environment, is seen in Central Asian and in other transition countries with point estimate 0.78 and 0.67 respectively. Based on our previous discussions about the effectual space, we may assume that uncertainty only provoke the aggressiveness of entrepreneurs instead of stopping the entrepreneurship at all, while these assumptions are due to the further investigations. At this time, based on our results we only may conclude that the effect of the environmental uncertainty on the size of MSME sector is not consistent and therefore we may say that the level of uncertainty does not determine the size of MSME sector of the country. This finding is important and the focus in the future should not be on whether the uncertainty effects or not, but what kind of businesses grow better in highly uncertain environments and how environmental uncertainty impacts on the quality and strategies of MSMEs. Additionally, further research should be done to find out what factors give attractive opportunities for entrepreneurs in running a business in a highly uncertain environments of transition economies. It might be possible that the uncertainty is a driver of entrepreneurship growth. In free and stable environments people prefer finding a stable job with a good salary and not to think about risking and fighting with competitors for customers, since in the developed economies there is a huge competition in all the markets. The future studies might look at the question of uncertainty from a different angle in order to check for the possibility of using the uncertainty as a tool for MSME growth. 2.7 Limitations One of the limitations of this study is the period analysed in the data which is from 2000 to 2008. It was not possible to find information for the more recent period or for a longer timeperiod for all the countries available. Salomat Yuldasheva 256 entrepreneurial logic in the companies who export all of their products and who export only a small share of their products. We also divided the respondents into groups: Exporting to only transition countries; Exporting to both developed and transition countries, since we thought that in developed countries there is usually much competition and to sell to developed countries a better planning, marketing, high quality products and organized logistics is necessary. Bootstrap analysis process revealed that the data on these groups is not balanced enough and therefore the results from Bootstrap analysis were not reliable to make any conclusions. In comparison of small and large companies the only difference was in the relationship between Entrepreneur’s Internationalization experience and the choice for Effectuation and Causation. In the small companies entrepreneurs with less previous internationalization experience use more effectuation and also more causation (internationalisaton experience is negatively correlated with effectuation and causation). While in the large companies entrepreneurs with more previous internationalization experiences use more of effectuation as well as causation logics (internationalisation experience is positively correlated with effectuation and causation). The fact that entrepreneurs sometimes use less effectuation and less causation reveals that entrepreneurs have other type of decisions that do not fit into effectual or causal logics and that was not covered by the Effectuation theory, thus there exist some alternative types of decisions. Our second and third hypotheses H2: The relationship between the Effectual Logic and Export Performance is positive in exporting SMEs in Uzbekistan. H3: The relationship between the Causation Logic and Export Performance is positive in exporting SMEs in Uzbekistan. were also proved and accepted by our results in R. According to the Bootstrap analysis the coefficients of Effectuation -> Exportperformance (0.2943331); Causation -> Exportperformance (0.1688895); Perceived Environmental Uncertainties -> Exportperformance (-0.4048718) are positive and significant. The results show that The Role Of The Entrepreneurial Logic In Export Performance 257 Effectuation is stronger in leading to a better Export Performance than Causation. According to path analysis in R the entrepreneurs use both logics to achieve a better Export Performance, however the control questions used for causation show that there is very limited use of causal logic in general. This fact demonstrates that entrepreneurs use effectuation and this logic leads to a better export performance. However, the small coefficients for both logics in the path analysis model creates an assumption that the exporting entrepreneurs in Uzbekistan rely on other types of decisions (logics) as well not covered by the Effectuation theory. This can be a possibility to develop this theory so that to be able to cover the type of decisions by entrepreneurs in transition economies. Another reason for these small coefficients might be undiscovered mediating factors that should be investigated in future. The next hypothesis H4: The positive relationship between the Effectual logic and Export Performance is more intense when the Perceived Environmental Uncertainties are higher. were not proved by the results of PLS - path modeling. We needed to investigate whether the relationship between Effectuation/Causation and Export Performance is different based on the level of perceived uncertainty. We explored several ways to analyse this interaction. We mainly utilised Resampling Method of a Group Comparison, Two-Stage Path Modeling Approach, Two-Stage Regression Approach. All the obtained results showed that the entrepreneurs whose perception of uncertainty threat is low and whose perception of uncertainty threat is high are not significantly different. Similarly the results showed that there is no significant moderation by PEU, meaning that the global path coefficients of our main model should be accepted in each case. In summary our research shows that entrepreneurs in Uzbekistan rely on Effectual logic in their exporting activities while ignoring their perceptions of environmental uncertainties and this leads to a better export performance. Salomat Yuldasheva 258 Conclusions and recommendations for future research In theoretical part of this study we thoroughly reviewed all the studies (existing in the field at the time of writing) related to Effectuation in internationalisation process (see the Appendix 1 for a detailed summary of this review). The exhaustive list of published studies related to effectuation during internationalisation process was not big due to the comparable novelty of the Effectuation theory itself. We found there was a need to rigorously investigate the entrepreneurial logic through the utilisation of effectuation and causation in order to draw more accurate conclusions. Moreover, we identified there was a research gap towards the investigation of the use of effectuation in the export type of internationalisation, in terms of its effects on export performance. According to the authors of the Effectuation theory, the more experience one has in the entrepreneurship the more effectual he becomes. They also argue that the more formal business education one has with less or no entrepreneurial experience the more he relies on the causation. In this paper we argue that entrepreneurs in Uzbekistan (a country with the economy in transition) mainly use effectual logic and the level of formal education and previous entrepreneurial experiences do not have importance on the selection of Effectual logic. We proposed the reason for this is that there is a limited good quality modern formal business education where knowledge of causal techniques is provided, and there is not enough entrepreneurial expertise (to be effectual) in a highly transforming, dynamic economy (a highly uncertain environment). Thus the number of years for obtained experiences should not change the reliance on Effectual logic. Our results have met our expectations, and revealed the fact that the length of different types of experiences do not have an effect on the preference for Effectual vs. Causal logic. Previous findings demonstrated positive impact of Effectuation on venture performance, especially when the environment is highly uncertain. Moreover those studies proved that it is effective to use effectual logic during the process of internationalisation of a firm. Therefore we proposed that the relationship between the Effectual Logic and Export Performance is positive in exporting enterprises of Uzbekistan. This proposition also has been accepted based on our results. Moreover due to our control questions we found out that the entrepreneurs do The Role Of The Entrepreneurial Logic In Export Performance 259 not use causation in their practice. In fact they could not locate what the competitive analysis or strategic planning are (causal techniques) although to the questions measuring the causation majority has selected “agree” or “strongly agree” options. One of the unexpected findings of this study was that the levels of perceived environmental uncertainties by entrepreneurs are from low to medium, although the business environment in Uzbekistan (like in all other transition economies) is evaluated by international organizations as one of the most uncertain environments. Based on the conclusions of previous studies we have proposed that the positive relationship between the Effectual logic and Performance is more intense when the Perceived Environmental Uncertainties are higher. However, in fact the perceived environmental uncertainties did not change the effect of effectuation on export performance. This might be because the environment in general is not perceived by entrepreneurs as highly uncertain at all whereas Effectuation was utilized highly in the periods of high uncertainty according to literature. Therefore slight changes in the perceived level of uncertainties did not significantly change the effect of effectuation. Main contributions of the study to entrepreneurship field are the findings that: x Limited effect of entrepreneurial previous experience and expertise in preferring effectuation to causation in Uzbekistan. x Limited or no use of causation in the country with transition economy. x There is no role of perceived level of uncertainty in the relationship between Effectuation and Export Performance. x Even in a highly uncertain business environment of Uzbekistan (as evaluated by international organizations such as World Bank) the entrepreneurial perceptions of uncertainties are from low to medium level. x Positive effect of effectuation on company’s exporting x It is the first study of the use of Effectuation in Central Asia, specifically in Uzbekistan. x It is the first implementation of Partial Least Square Path Modeling method in Effectuation related studies. x It is the first use of moderated interaction of Perceived Environmental Uncertainty in Effectuation-Export performance relationship Salomat Yuldasheva 260 Based on some limitations of this study there are some opportunities for future research. One of these limitations is that the sample size was not big enough to differentiate groups generated by each dimension of the Effectuation construct. The future research should be done based on a bigger survey sample in order to identify the importance and relevance of the dimensions of Effectuation and to find the effects of each on the Export Performance. Moreover the future research should be done across different countries with transition economies to be able to generalise the findings. One more question is generated with our results: what factors mediate between entrepreneurial logic (effectual vs. causal) and the company’s export performance. Path coefficients between Effectuation/Causation and Export Performance were not very high. This happens when direct effect is generated by several indirect effects. The future studies may focus on mediators and moderators in this relationship model. 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Available at: http://documents.worldbank.org/curated/en/261661468151502627/Managements-discussionand-analysis-financial-statements-sustainability-review-and-investment-portfolio The Role Of The Entrepreneurial Logic In Export Performance 281 Appendix Appendix 1 Table 1: Previous studies with Effectuation theory Venture performance Read, et.al., 2010; Read et.al., 2009; Rust, 2010; Klessens, 2012; DeTienne & Chandler , 2010; Garronne, et. al., 2010; Schl¨uter1, et.al., 2011; Mthantia & Urban, 2015 Entrepreneurial characteristics Sarasvathy,2001; Read et. al.,2011; Sanjay Goel & Ranjan Karr, 2006; Ranjan Karri & Sanjay Goel, 2008 ; ENGEL ET.AL., 2014; Engel, et. al., 2013; Engel, Kleijn, Khapova, 2013; Lasse Kröger, 2013 Firm characteristics Kraaijenbrink, 2011; Sussie Morrish, 2009 Innovation and R&D projecs Daniel Kupper & Burkhart, 2009; Hans Berends, Mariann Jelinek, Isabelle Reymen, and Rutger Stultiëns, 2013; Svensrud, Erik, Åsvoll, Håvard, 2012; Mun K. Sitoh, Shan L. Pan, and Ching - Ying Yu, 2014, Anon 2014; Malte Brettel, Ren й Mauer , Andreas Engelen, Daniel Kuppe r, 2011; Jeffrey G. York, S. Venkataraman, 2010 Governemnt policies related to the management of sme Dan, 2013 Start up process Jonas Gabrielsson Æ Diamanto Politis, 2011; Gaylen et. al., 2011; Jan Brinckmann, Dietmar Grichnik, Diana Kapsa, 2010; Sarasvathy & Dew, 2005; Wiltbank , Read, Dew , Sarasvathy , 2009 Opportunity recognition vs creation Dew, et al., 2011; Sarasvathy & Dew, 2005; Patricia Doyle Corner & Marcus Ho, 2010; sarasvathy, 2001; Henrik Berglund, 2007; Sanjay B Howmick, 2011; Sarasvathy & Dew 2004; Laaksonen, et. al., 2011; Natasha Eversa & Colm O’Gorman, 2011;Tuija Mainela& Vesa Puhakka, 2009; Elicia Maine , Pek-HooiSoh , NancyDosSantos, 2014; Sme internationalisation Tuija M ainela& Vesa Puhakka, 2009; Kalinic, et. al., 2012; Harms& Schiele, 2012; Igor Kalinic, Saras D. Sarasvathy , Cipriano Forza, 2013; Witold Nowi_ski, Alex Rialp, 2012; Strategic alliances Eugene Geh, 2011 Strategic entrepreneurship, Exit strategies Sarasvathy , et.al., 2014; Dawn R. DeTienne, Gaylen N. Chandler , 2010; Isabelle Reymena, Petra Andries, Hans Berends , Rene Mauer, Ute Stephan, Elco van Burg; Jeroen Kraaijenbrink , 2008; Sanjay Bhowmick. 2015; Stuart Read, 2015; Isabelle Reymena, Petra Andries, Hans Berends, Rene Mauer, Ute Stephan, Elco van Burg, 2015; Sussie Morrish, 2009; Wiltbank, Dew, Read and Sarasvathy, 2006 Measurements for effectual/causal logic Chandler et al., 2007; Perry et al., 2012; Chandler et.al, 2011; Read at. al , 2009; Helmersson & Matsson, 2012; Agnete alsos et al., 2014 The effectuation theory Sarasvathy, 2001; 2003;2005; 2009;2012; Dew & Sarasvathy, 2007; Terry et al., 2012; Chiles, et al., 2008; Dew, Read, Sarasvathy , Wiltbank, 2008; Greg Fisher., 2012; Johan Frishammar & Svante Andersson, 2009; Read, Sarasvathy, Dew, Wiltbank, 2016; Saras D. Sarasvathy, Sankaran Salomat Yuldasheva 288 entrepreneurs, and in preference to networking strategically and systematically. x The process of networking itself is not purely strategically driven by a predefined network goal or written as a plan, but is also more effectual. x Newly established contacts are added to the existing ‘who I know?’ part of effectual means, and subsequently used for further networking. x It is supported that effectual partnering differs from serendipitous networking and coincidental meeting of people at random. The first export order: a marketing innovation Revisited Crick & Crick Journal of Strategic Marketing; 2015 Who tends to be the moving force in commencing exporting? What motivates him (her)?; Under what conditions is exporting likely to be adopted?’ The paper revisits the topic discussed almost 50 years ago in the context of interviews with 10 owner/managers of internationalising UK firms in the first year of their firm’s start - up phase. Case study approach with 10 newly internationalising UK start -up firms x The effectuation lens advocated by Sarasvathy ( 2001 ) was evident to some extent in each of the 10 owner/managers, but planned (causation) decision - making was also a key driving force behind the first export order. Specifically, each had a clear objective of broadly where their firm needed to head which was in line with causation - based planning. x The network-based view (Welch & Welch, 1996, 2004) was also a condition that played a role in all manag ement teams’ decisionmaking, given that risks were trying to be minimised. The existing networks utilised by management teams reduced the risk of operating internationally. This links with the fourth point of institutional factors and the perceived risk of operating in psychologically distant markets (Johanson & Vahlne, 1977). x All interviewees knew the broad direction they wanted their firms to head towards that included the need to export; therefore, planned decisionmaking was apparent in respect of a larger goal with a single outcome (causation). Various opportunities either domestic or overseas in nature were evaluated over the first year of operation. Each opportunity had potential outcomes and risk/reward considerations, especially tied to obtaining first mover advantage or at least gaining a foothold in a market. Nevertheless, each had perceived affordable losses; hence, effectuation decision - making also played a role in reaching their overall goal (Sarasvathy, 2001 ). x The respective firms’ first export order was a largely planned market innovation rather than unplanned and serendipitous. Even if it appeared that an unsolicited order was received, proactive management teams undertook positive initiatives that resulted in the order such as website development and creating word -ofmouth reputation in niche markets. The exact reason for receiving the order was therefore not as The Role Of The Entrepreneurial Logic In Export Performance 289 serendipitous as might be first thought, i.e. international entrepreneurs made their own luck! Effectuation and causation: Two decision making logics of INVs at the early stage of growth and internationalisation Mlinaric, Obloj, Wasowska Journal For East European Management Studies · March, 2016 What decision-making logic (effectual or causal) is dominant in the new venture internationalisation process and what influences its changes over time? Examined the decisionmaking logics of an INV over three phases of its growth: pre - start up/venture creation, pre - internationalisation (international preparation), and postinternatio nalisation (international entry development and growth) A single case study of a Polish international new venture (INV) operating in the audiobook industry. Proposition 1. The decision-making logic of an INV may change over time, shifting from effectual to causal (and vice versa). These logic shifts depend on the characteristics of the problem space (i.e., perceived uncertainty). Proposition 2. An INV may follow both effectual and causal logic at the same time, depending on the characteristics of the problem space. When making decisions on internationalisation, entrepreneurs are more likely to follow effectual logic. The probability that they will do so increases when entrepreneurs do not possess prior international experience. Proposition 3: Network partner s act as ‘effectual stakeholders’, reducing the level of uncertainty faced by an INV. Proposition 4: Entry of a VC triggers the shift of the decision - making logic of an INV from effectuation to causation, especially in well - recognized fields (such as domestic markets) characterized by low uncertainty. Proposition 5: A VC may accept effectual logic (based on ‘entrepreneurial expertise’) as an asset when going international (i.e., venturing into a new field characterized by high uncertainty). An appreciative inquiry into the first export order. Crick & Crick , 2016; Qualitative Market Research: An International Journal, Vol. 19 Iss 1 pp. 84 - 100 What lies behind a firm’s decision to internationalise? Investigation focuses on decision - making with respect to the initial decision to internationalise and draws on the research of Sarasvathy (2001) who discusses causation versus effectuation approaches A single case study x A combination of causation and effectuation based decision - making is likely to exist in planning, and the two should not be seen as dichotomous. Specifically, decision makers may be easily able to articulate a broad direction in which they want to head, i.e. in line with a causation - based approach. In reality, a series of decisions will be traded off as risk/reward considerations in the form of perceptions of affordable losses in heading towards that broad goal, i.e. more consistent with an effectuation - based approach (Sarasvathy, 2001). As such, the managerial objectives that Crick and Spence (2005) refer to are likely to evolve with respect to the start and continuation of a firm’s internationalisation process. Salomat Yuldasheva 290 Appendix 3 Table 3: Measurement scale for Effectuation and Causation Causation ( using a 7–point Likert scale) - We analyzed the long run opportunities for exporting and decided to export because it was the option providing the best returns . - We researched and selected export target markets and did meaningful competitive analysis. - We designed and planned export business strategies. - We organized and implemented control processes to make sure we met export objectives. Effectuation ( using a 7–point Likert scale) Experimentation: - The product/service that we now provide for export is substantially different than we first imagined. - We tried a number of different approaches to export until we found a business model that worked. Affordable loss: - We were careful not to commit more resources on exporting than we could afford to lose. Flexibility: - We adapted exporting activities to the resources we had. - We were flexible and took advantage of exporting opportunities as they arose. - We avoided courses of export related actions that restricted our flexibility and adaptability. The Role Of The Entrepreneurial Logic In Export Performance 291 Precommitments: - We used a substantial number of agreements with export customers, suppliers and other organizations and people to reduce the amount of u ncertainty. - We used precommitments from export customers and suppliers as often as possible. - We used agreements with other people and organizations to help deal with changes in our exporting environment. Partnering: - We were able to use family, friends, and other network contacts to provide low cost resources to use in our export activities. Focus on resources: - Our export related decision making has been based on the knowledge and resources we control. - When selecting export opportunities our decisionmaking is focused more strongly on what we know how to do well than on external factors such as competitors, environmental conditions and uncertainty. Measurement scale for Perceived Environmental Uncertainties Local Sources of Uncertainty (relevant to the characteristics of the transition economy): (using a 5 –point Likert scale) Sources of Uncertainty Types of Uncertainty Resource uncertainty - uncertainty about the amount and the availability of financial resources (within and outside the company) - uncertainty about the amount and the availability of human resources (within and outside the company) Salomat Yuldasheva 292 Supplier uncertainty - uncertainty about the timing - quality - and price of the delivery Political uncertainty - unclear or inconsistent regulation - lack of regulation - future changes in regulation - governmental behavior Economic uncertainty -uncertainty about inflation rates - uncertainty about interest rates - uncertainty about exchange rate with dollar Export Market Uncertainties (using a 5 –point Likert scale) Sources of Uncertainty Types of Uncertainty Consumer uncertainty - uncertainty about consumers’ preferences - uncertainty about consumers’ characteristics - uncertainty about the development of the demand Competitive uncertainty - uncertainty about competitors’ actions - uncertainty about long-term development of the market (size and maturity of the demand) Political uncertainty - unclear or inconsistent regulation The Role Of The Entrepreneurial Logic In Export Performance 293 - lack of regulation - future changes in regulation - and governmental behavior of export country EXPERF scale for the measurement of Export Performance FP: Financial Export Performance ( using a 5-point Likert scale ) FP1: The firm has been very profitable in export market FP2: The firm has generated a high volume of sales FP3: The firm has achieved rapid growth SE: Satisfaction with Export Venture ( using a 5-point Likert scale ) SE: The firm performance has been very satisfactory SE: The firm´s export has been very successful SE: The export performance has fully met our expectations Salomat Yuldasheva 294 Appendix 4 There are four questions related to the construct Causation that were evaluated with 7-point Likert scale where 1 means “completely disagree and 7 means “completely agree”: 1 We analyzed different long run opportunities for exporting and decided to export because it was the option providing the best returns. 2 We researched and selected export target markets and did meaningful competitive analysis. 3 We designed and planned export business strategies. 4 We organized and implemented control processes to make sure we met export objectives. We included four control questions for them: 1. How did you identify the exporting countries that you are selling now? a) Finding customers and creating contracts (i.e. in trade fairs or in other business events) b) Marketing research and review of trade statistics for several countries c) Other………………………… ……………… 2. Indicate the names of your main competitors in each of your export country 1) Country……………………… ……………………………… … Competitor…………………… ……………………........... 2) Country……………………… ……………………………… … Competitor…………………… ……………………........... The Role Of The Entrepreneurial Logic In Export Performance 295 3) Country……………………… ……………………………… … Competitor…………………… ……………………........... 4) Country……………………… ……………………………… … Competitor…………………… ……………………........... 5) Country……………………… ……………………………… … Competitor…………………… ……………………........... 3. According to your control processes what percentage of your export sales plan you met in the last year? 4. What are your main strengths related to your export country competitors? Those who are agree with a statement that says that they analyzed different long run opportunities for exporting before starting an exporting most probably select answer “B” in the first control question. Those who strongly state that they researched and selected export target markets based on competitive analysis will not have a problem in stating the names of the main competitors in each exporting country. Those who state that they created an export strategy will not have a problem in stating main strengths and weaknesses in front of their competitors. And finally those who state that they organized and implemented control processes to meet export objectives will definitely know what percentage of a planned export volume they have accomplished. A questionnaire is attached in the appendix 5. Salomat Yuldasheva 296 Appendix 5 Survey Questionnaire About Entrepreneur 1. Your date of birth: ……………….. 2. Did you spend time abroad previously? a) Yes b) No If yes indicate below the years spent abroad related to the activities: c) Work related ……………….. years d) Not Related to work: ……………….. years e) Other …………………………………………………….. 3. Did you have previous experience in export related activities, establishing firms abroad or organizing these activities in any role? a) Yes b) No If yes please indicate the below the years spent in the following activities: c) Export/Internationalisation related activities: ……………….. years d) Others: ……………….. years 4. What is your latest obtained degree? a) Finished school ---------------------------- b) College/ Technikum graduate in ---------------- c) BA degree graduate in------------------------- d) 5-year Higher education/Master´s degree graduate in ------------------------------------------------------ e) Other -------------------------------------------------- About Company 5. The Formal Type of the company …………………………………………………………………….. 6. What products do you export? ……………………………………………………………………… The Role Of The Entrepreneurial Logic In Export Performance 297 7. How many employees do you have? ……………… ……………………………………………………… 8. How many years are you exporting? ……………….. 9. Which countries are you exporting to? ……………….. 10. What percentage of your total sales is generated by export? ……………….. % 11. Do you import your inputs to the production of your exporting products from another country? a) Yes b) No If yes, what percentage of the supplies are imported, approximately: ……………….. % 12. What type of customers are you exporting to? a) Consumers b) Industries c) Consumers and industries i) How did you identify the exporting countries that you are selling now? d) Finding customers and creating contracts (i.e. in trade fairs or in other business events) e) Marketing research and review of trade statistics for several countries f) Other……………………………………………………… ……. ii) Indicate the names of your main competitors in each of your export country 6) Country………………………………………………… ……… Competitor………………………………………….... ....... 7) Country………………………………………………… ……… Competitor………………………………………….... ....... 8) Country………………………………………………… ……… Competitor………………………………………….... ....... 9) Country………………………………………………… ……… Competitor………………………………………….... ....... Salomat Yuldasheva 304 28. Please indicate how much you agree or disagree with the following statements about your export performance (where strongly disagree is 1 and strongly agree is 5): About Entrepreneur and the Firm 29. Please indicate how much you agree or disagree with the statement on the left Completely disagree 1 Mostly Disagree 2 Somewhat Disagree 3 Neither Agree nor Disagree 4 Somewhat Agree 5 Mostly Agree 6 Completely Agree 7 1. Experimentation: The product/service that we now provide for export is substantially different than we first imagined and offered. 2. We tried a number of different approaches to export until we found a business model that worked. 3. Affordable loss: We were careful not to risk so much money on exporting that the company would be in real trouble financially if things didn’t work out. 3,1. We were careful not to commit more resources on exporting than we could afford to lose 4.Flexibility: We adapted exporting activities to the resources we had. 5. We were flexible and took advantage of exporting opportunities as they arose. Export Performance Strongly disagree 1 Disagree 2 Neither disagree nor agree 3 Agree 4 Strongly agree 5 FP1: The firm has been very profitable in export market FP2: The firm has generated a high volume of sales FP3: The firm has achieved rapid growth SE: The firm´s export performance has been very satisfactory SE: The firm´s export has been very successful SE: The export performance has fully met our expectations The Role Of The Entrepreneurial Logic In Export Performance 305 Completely disagree 1 Mostly Disagree 2 Somewhat Disagree 3 Neither Agree nor Disagree 4 Somewhat Agree 5 Mostly Agree 6 Completely Agree 7 6. We avoided courses of export related actions that restricted our flexibility and adaptability. 7. Precommitments: We used a substantial number of agreements with export customers, suppliers to reduce the amount of uncertainty. 8 . We used precommitments from export customers and suppliers as often as possible. 9. We used agreements with other people and organizations to help deal with changes in our exporting environment. 10. Partnering: We were able to use family, friends, and other network contacts to provide low cost or free resources to use in our export activities. 10,1. Friends, family, and other network contacts provided services that we otherwise would have had to pay for. 11. Focus on resources: When selecting export opportunities our decisionmaking is focused more strongly on what we know how to do well than on external factors such as competitors, environmental conditions and uncertainty. Completely disagree 1 Mostly Disagree 2 Somewhat Disagree 3 Neither Agree nor Disagree 4 Somewhat Agree 5 Mostly Agree 6 Completely Agree 7 12. Our export related decision making has been based on the knowledge and resources we control. Salomat Yuldasheva 306 29. Please indicate how much you agree or disagree with the statement on the left. How close or far the statements from the reality 31. Please indicate your ratings of the activities in the following statements: 1. EO1 In general, I and the top managers of my firm favor: A strong emphasis on the marketing of tried -and-true products or services 1 2 3 4 5 6 7 A strong emphasis on technological leadership, innovations Causation: Completely disagree 1 Mostly Disagree 2 Somewhat Disagree 3 Neither Agree nor Disagree 4 Somewhat Agree 5 Mostly Agree 6 Completely Agree 7 1. We analyzed different long run opportunities for exporting and decided to export because it was the option providing the best returns. 2. We researched and selected export target markets and did meaningful competitive analysis. 3. We designed and planned export business strategies. 4. We organized and implemented control processes to make sure we met export objectives. The Role Of The Entrepreneurial Logic In Export Performance 307 2. EO2 How many new lines of products or services has your firm marketed since its establishment? No new lines of products orservices 1 2 3 4 5 6 7 Very many new lines of products or services 3. EO3 Changes in product or service lines have been mostly of a minor nature 1 2 3 4 5 6 7 Changes in product or service lines have usually been quite dramatic EO4; EO5; EO6 In dealing with its competitors, my firm: 4.Typically responds to actions that competitors initiate 1 2 3 4 5 6 7 Typically initiates actions to which competitors then respond 5. Is very seldom the first business to introduce new products/services, administrative techniques, operating technologies, etc 1 2 3 4 5 6 7 Is very often the first business to introduce new products/services, administrative techniques, operating technologies, etc. 6.Typically seeks to avoid competitive clashes, preferring a “live -and-letlive” posture 1 2 3 4 5 6 7 Typically adopts a very competitive, “undo - thecompetitors” posture Salomat Yuldasheva 308 7. EO7 In general, the top managers of my firm have: A strong proclivity for low-risk projects (with normal and certain rates of return) 1 2 3 4 5 6 7 A strong proclivity for high-risk projects (with chances of very high returns) 8. EO8 In general, the top managers of my firm believe that: Owing to the nature of the environment, it is best to explore it gradually via cautious, incremental behavior 1 2 3 4 5 6 7 Owing to the nature of the environment, bold, wideranging acts are necessary to achieve the firm’s objectives 9. EO9 When confronted with decision-making situations involving uncertainty, my firm Typically adopts a cautious, “wait -and-see” posture in order to minimize the probability of making costly decisions 1 2 3 4 5 6 7 Typically adopts a bold, aggressive posture in order to maximize the probability of exploiting potential opportunities The Role Of The Entrepreneurial Logic In Export Performance 309 General Conclusions In this thesis we studied the Effectuation concept in relation to entrepreneurship and export performance in transition economies. In doing so we performed three different studies. In the first study we examined theoretically the concept of uncertainty given in the Effectuation theory and the concept of uncertainty existent in the transition economies. Building on Effectuation theory and Institutional theory, we brought together specifications of an effectual space and compare them with ones of transition economies. A special focus was given to the discussion of uncertainties in Central Asian countries and other former Soviet Union countries, where the source of uncertainties is a lack of stable institutional structure and therefore a highly volatile business environment. No previous study was done which links Institutional and Effectuation Theories. Each component of an effectual space was discussed in the current practices of entrepreneurs in Uzbekistan. The discussion of uncertainties, stemmed from institutional settings and government regulations, through the lens of effectuation theory is the first in the literature and this is our contribution to this field. Moreover we opened a new discussion area within the Effectuation theory by proposing that the ideal effectual space with high (Knightian) uncertainty, together with goal ambiguity and environmental isotropy is found in the transition markets. And this by its turn brings forward the idea that the entrepreneurs in the transition economies are ‘forced’ to use effectual logic by their business environments. During the review of a literature in this study one of the additional discoveries for the authors was that the whole governments which are in transition are ruled by using whether effectual or causal approach. The economic transition process in Central Asian countries seems to the process of effectuation, as all the countries started with what they were left in hands after the collapse of the Soviet Union and what knowledge and experiences they had, and whom they knew for the partnerships. This is consistent with what says Sarasvathy, entrepreneurs begin with three categories of "means": they know who they are, what they know, and whom they know—their own traits, tastes, and abilities; the knowledge corridors they are in; and the social networks they are a part of. At the level of the firm, the corresponding means are its physical resources, human resources, and organizational resources. At the level of the Salomat Yuldasheva 310 economy, these means become demographics, current technology regimes, and sociopolitical institutions such as property rights. (Sarasvathy, 2001a). All the Central Asian countries had to heavily rely on what they had in their initial stages of the transition, their major natural resources, human capital and a destroyed institutional environment. In contrary, the institutional management of the Eastern European countries was mainly done by using plans which included criteria for conditions to entry to European Union (EU) that can be called a causal approach to the management of the country. The causal approach is possible when there is a low level of uncertainty and availability of funds to accomplish the set objectives, as in the case of EEC, where they had access to EU funds (initially preAccession funding and latterly Structural Funds). This has encouraged new member states to adjust their institutional structures and processes to increase their chances of securing this funding, some of which were used to promote and support entrepreneurship at the national and regional levels. As a resident of one of the countries with a transition economy the author observed that the entrepreneurship in the transition economies is blossoming, growing very quickly, the markets are getting richer from day to day. This fact was backed up by the data provided by international organizations such as World Bank. It was observed that while entrepreneurs face high uncertainty challenges, the countries with transition economy achieved a tremendous growth in their share by Micro-Small-Mediumsized enterprises (MSME). While still many studies highlight uncertainty as a negative condition and relate it to a worse performance by the firms. In the second chapter we aimed to investigate the effect of an uncertainty on the share of MSME’s. Since we presumed that uncertainty makes the entrepreneurs to change the entrepreneurial logic to effectual instead of failing the business, we proposed that there is no effect of the level of environmental uncertainty on the share of MSMEs. Based on the growth indicators in many countries with transition economies we argued that the effect of the uncertainty in the business environment which comes from institutional vulnerability is not significant and that even in highly uncertain transition process the MSME sector size will still grow. The Role Of The Entrepreneurial Logic In Export Performance 311 The transition economies have recently allowed the existence of private sector therefore there is a huge demand for yet not existing products and services. The markets are not as rich as ones in the developed economies, and in order to enjoy the windows of opportunities there should be a strong continuous growth in the size of the private sector and mainly of MSME sector. Therefore the effects of institutional uncertainty are overcame by the market demands. The previous studies that focused on the effect of uncertainty or the effect of the environment attempted to compare all the countries at once without taking into account any specific characteristics of regions, countries or even groups of countries (see for example: Rocha, 2012; West & Drnevich, 2010; Ghosal & Ye, 2015). This has led to ignore the fact that the MSME sector in transition economies is still new and therefore they have less share by MSMEs comparing to the one in developed economies and not necessarily due to the impact of environment. Our study has taken into account which type of economy belongs each country. We performed a Mixed effects model using a two level model. Mixed effects regression is a more sophisticated approach that can incorporate individual growth characteristics in a single model, which simultaneously estimates individual country curves and a sample average curve (Goldstein, 2010). Mixed effects consist of fixed effects (i.e., average parameter values for the entire sample) and also random effects that are different for each group or even each country. The mixed-effects model is usually used when data is clustered in some manner, as in this paper since there are developed economies, emerging economies and transition economies. Moreover transition economies are clustered within different regions based on their recent histories. Moreover, in this chapter we measured the levels of transition uncertainty, by adapting the measure of uncertainty created by Susjan and Redek (2008). We have adapted this Uncertainty index taking into consideration specific factors related to Former Soviet transition economies and specifically Central Asian countries. Based on our results we concluded that the effect of the environmental uncertainty on the size of MSME sector is not consistent and therefore we may say that the level of uncertainty does Salomat Yuldasheva 312 not determine the size of MSME sector of the country. This finding is important and the focus in the future should not be on whether the uncertainty effects or not, but what kind of businesses grow better in highly uncertain environments and how environmental uncertainty impacts on the quality and strategies of MSMEs. Additionally, further research should be done to find out what factors give attractive opportunities for entrepreneurs in running a business in a highly uncertain environments of transition economies. The discussion of an effectual problem space in Uzbekistan and the discovery of insignificant effect of an uncertainty on the growth of MSME’s in different countries provided a background for our principal question which was investigated in the third chapter. In this we studied whether entrepreneurs use effectual or causal logics and how this effects on their performance. We identified there was a research gap towards the investigation of the use of effectuation in the export type of internationalisation, in terms of its effects on export performance. We provided detailed review of a prior research that focused on the effectuation vs. causation logics within the internationalisation process of firms in the literature review part of a chapter 3. According to the review of this literature several all the studies confirmed that effectuation logic is useful in the internationalisation process and that all the companies in the studies relied primarily on their available resources and networks in their internationalisation process. Therefore it was possible to perform an unplanned high level of international commitment in an unknown market and unexpectedly accelerate the internationalization process despite limited international experience and lack of an international network (Kalinic, Sarasvathy, Forza, 2013). However the authors could not locate the investigation about the role of effectuation in export performance and moreover in exporting from the transition economies therefore it was the focus of this study. Data analysis was performed using Partial Least Squares (PLS), a structural equation modeling technique that uses a principal-component-based estimation approach (Chin 1998). We applied partial least squares path modeling (PLS-PM) in R program (Sanchez, 2013) to test the hypotheses. The R program allows the use of moderators and the implementation of both reflective and formative scales (Sanchez, 2013) and PLS-PM doesn't impose any distributional assumptions on the data. The Role Of The Entrepreneurial Logic In Export Performance 313 The results from our first models showed that there is a positive effect of decisions based on Effectual logic on the Export Performance. Based on our control questions there is no causal decisions taken in reality and this fact was expected from the beginning. The limited effect of entrepreneurial previous experience and expertise in preferring effectuation to causation in Uzbekistan also was one of the expected findings. Unexpected finding was that the perception of uncertainties by the entrepreneurs in Uzbekistan were not high, were from low to moderate. And therefore the results showed that there is no role of perceived level of uncertainty in the relationship between Effectuation and Export Performance, because we could not compare the relationship between those who are suffering high uncertainty level and who are not suffering so much from the uncertainty. Whereas this country is one of the worst countries in terms of its business environment according to the Heritage Foundation’s ratings. Strong contributions of this paper are that this is the first study which studied Effectuation in Central Asia, specifically in Uzbekistan. It is the first implementation of Partial Least Square Path Modeling method in Effectuation related studies . And it is the first use of moderated interaction of Perceived Environmental Uncertainty in Effectuation-Export performance relationship. The results of this thesis can be used in the teaching process of entrepreneurship and economics field of studies. For the researchers this study will be a good source in learning how to use PLS-PM modeling in entrepreneurship studies and what can be the main issues related to the measurement tools for latent variables. Further research is welcomed to study the same research question but with a much bigger sample and from different countries. When we have a better, wider sample from different countries we are more able to compare not only the relationship between the entrepreneurial logic and export performance but also the effect of the indeed different levels of perceived environmental uncertainties on this relationship.