exploring entrepreneurship. inspiration from the field

Inspirations from the Field

EditorSvetlana Gudkova

EXPLORING EntrepreneurshipInspirations from the Field

Exploring Entrepreneurship represents a wel-come addition to the field of international entrepreneurship education. The various chapters in this anthology have something for everyone interested in entrepreneurship education. The book seamlessly integrates entrepreneurship theory with practices from the “field” such as case studies, consulting projects, and interviews with entrepreneurs. Kudos to the Kozminski University students and their professors!

Prof. Patricia Sanders, Ph.D., President Emeritus and Professor

of Entrepreneurship, Post University

Exploring Entrepreneurship is a truly unique and in-teresting volume. The book addresses new issues and phenomena that entrepreneurship has to face these days, including the technological challenges (such as botnet attacks), the social entrepreneurship, or gamifi-cation. I highly recommend this timely publication to all researchers interested in the topic. Additionally, it may serve as a useful resource for all those, who teach en-trepreneurship: by linking theory with hands-on case studies, as well as problem questions and discussions, it is a great teaching companion.

Prof. Dariusz Jemielniak, Ph.D., Head of New Research on Digital Society (NeRDS)

group at Kozminski University, Berkman Center for Internet and Society (Harvard University)

KOZMINSKI UNIVERSITY


Project co-financed by the European Union under the European Social Fund

ISBN 978-8389437-64-8

EXPLORINGEntrepreneurship

AuthorsSvetlana Gudkova (ed.)Dominika WojtowiczAnna PikosAleksander MaziarzMariola Ciszewska-MlinaričMonika GolonkaMarcin WardaszkoYaryna DrobatyukSimona TodorovaAnastasiya TsyrulnykovaŁukasz CzarneckiMaryna HraynivetskaKarolina KochmanKrzysztof SzadkowskiArtem KovtunMateusz BodioKamil Szymański

ReviewersProf. Patricia Sanders, Ph.D., President Emeritus and Professor of Entrepreneurship,Post UniversityProf. Dariusz Jemielniak, Ph.D., Kozminski University

© Copyright by Kozminski UniversityWarsaw 2015

Project “Academy of Entrepreneurship: Get inspired!”

Contract Number: UDA-POKL.04.01.01-00-104/14-00Human Capital Operational Programme Priority IV – Higher education and research activitiesMeasure: 4.1 Strengthening and development of didactic potential of universities and increasing the number of graduates of key importance to the knowledge-based economySub-measure 4.1.1. Strengthening the didactic potential of higher education institutions

Project co-fi nanced by the European Union under the European Social Fund

ISBN 978-8389437-64-8

Book design and production by Poltext sp. z o.o.

Free copy

www.kozminski.edu.pl

Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Social Entrepreneurship: The Innovative Approach to Solving Social Problems Svetlana Gudkova, Simona Todorova, Yaryna Drobatyuk . . . . . . . . . . 11

The Role of Social Networks in Establishing New Ventures Dominika Wojtowicz, Anastasiya Tsyrulnykova . . . . . . . . . . . . . . . . . . 37

Botnet Strikes Back: Entrepreneurial Risk Management Anna Pikos, Łukasz Czarnecki . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Legal Aspects of Starting Up a Business in Selected EU Countries Aleksander Maziarz, Maryna Hrynivetska . . . . . . . . . . . . . . . . . . . . . . 83

Venturing into BRICS: The Dilemma of a Polish Medium-Sized Firm, Granna Sp. z o.o. Mariola Ciszewska-Mlinarič, Karolina Kochman, Krzysztof Szadkowski . . 99

SMEs and Alliances: The Challenge of Choosing the ‘Right’ Partner Mariola Ciszewska-Mlinarič, Artem Kovtun . . . . . . . . . . . . . . . . . . . . . 129

Spis treści6


Corporate Entrepreneurship: Manager Initiatives Leading to a Reduction of Knowledge Leakages in Strategic Alliances Mateusz Bodio, Monika Golonka . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Employing Gamification to Foster Corporate Entrepreneurship Marcin Wardaszko, Kamil Szymański, Anna Pikos . . . . . . . . . . . . . . . . 171

Notes about the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187


Preface

It has been 25 years since the explosion of entrepreneurship has taken place in Poland in the beginning of the 1990s. The successful transition

has changed the economic, political and social landscape bringing nu-merous opportunities and creating an environment supportive for un-dertaking entrepreneurial actions. Many entrepreneurs have taken advantage of these changes by establishing business ventures. More than 2 million businesses were registered during four consecutive years. Some of them, like Fakro, Wittchen, Solaris or Granna, experienced success-ful growth and became leading players in the international market. Some of them disappeared, not being able to withstand the growing competi-tion. It is also important to emphasise the significance of entrepreneur-ial traditions developed in Poland in the 19th and at the beginning of the 20th century, which have been maintained mainly by family busi-nesses throughout the difficult times of a centralised, state-regulated economy.

The 21st century is bringing new opportunities and challenges to potential entrepreneurs willing to establish their own businesses or tak-ing over their family firms. It is also a challenge for the institutions of higher education to design programs that will effectively support entre-preneurs. The establishment and successful development of a business venture requires the founders to have a diversified set of competences, including general and specific knowledge, professional skills, strong motivation, self-efficacy, entrepreneurial traits and, most importantly, a sensitivity to business opportunities and a courage to act. On top of that, it is important to understand the dynamic character of entrepre-neurial competences and the ability to learn. Developing such entrepre-

8


Preface

neurial competences requires the use of various interactive tools and methods in the education process, such as case studies, interviews with entrepreneurs, consulting projects, business plans, simulation games, debates, workshops.

This book has been designed to support the entrepreneurial learning process with inspirational cases and evidences from the field collected by students and for students. Each chapter consists of a literature anal-ysis, an empirical part, questions for further discussion or tasks to be performed, recommended readings and references.

What makes this book different is the process of its creation, which is not less important than the final result itself. It shows the experiences of the students of the Kozminski University from the exploration of the entrepreneurship field. Guided by the experienced faculty, they inves-tigated different types of entrepreneurship by taking different perspec-tives. The first four chapters are dedicated to issues associated with es-tablishing and developing a new entrepreneurial venture. This part starts with a chapter that introduces the phenomenon of social entrepreneur-ship and inspires students to think about becoming a social entrepreneur. The authors present several social business concepts, which have been developed to address the environmental and social problems of the contemporary world. The next article explores the power of social net-works and their role in the process of establishing a new business. The authors discuss different types of benefits that may be achieved by an entrepreneur through active participation in a social network. The third chapter is dedicated to risk management practices. The authors explore the importance of and deliver guidelines for establishing risk manage-ment systems in companies. The case of an IT firm dealing with risks associated with Internet technologies is presented. The final chapter of the first part discusses the legal aspects of establishing a business entity in different EU countries.

The chapters presented in the second part of the book focus on the entrepreneurial challenges typical for more mature businesses. The first article explores the phenomenon of internationalisation of small and medium-sized enterprises. The authors discuss the dilemma of a Polish medium-sized firm, Granna, entering the market in India. The second chapter is dedicated to strategic alliances and their role in international expansion. The authors present the process and criteria of international partner selection using the case of Ankietka.pl – a leading Polish website for creating intuitive online surveys. The next article addresses the issue

Preface 9


of knowledge leakages in strategic alliances. The authors discuss the major threats associated with coopetition and the methods of their re-duction using the case of PGNiG S.A. The final chapter presents gami-fication as an innovative tool for fostering corporate entrepreneurship. The authors discuss the case study of a call centre to show the benefits of the gamified model of work.

The publication has been prepared within the project ‘Academy of Entrepreneurship. Get Inspired’, the aim of which is to develop the entrepreneurial skills of students through a variety of extracurricular activities, such as workshops and lectures, trainings with professionals and company visits.

Svetlana Gudkova


Chapter 1

Svetlana Gudkova, Simona Todorova, Yaryna Drobatyuk

Social Entrepreneurship: The Innovative Approach to Solving Social Problems

Introduction

How to save the world? This question is being asked more and more frequently in different places of the globe to address the growing

social and environmental challenges. Entrepreneurship and entrepre-neurs in particular may successfully deliver the answer to this difficult question through offering a new approach to serving social and envi-ronmental needs. The best illustration of this new approach may be found in the title of the article published in 2003 in The New York Times ‘How to Save the World? Treat It Like a Business’ (Eakin, 2003). Social entrepreneurship aims to combine creativity, innovativeness, flexibility and courage to act, which are typical for entrepreneurial ventures with commitment, high internal motivation and a great passion often associ-ated with philanthropy.

European Commission data shows that more than 2 million social enterprises can be found in the European Union employing 6% of the working population. 5 million people are employed within the social entrepreneurship sectors, generating 4–7% of EU Member States’ GDP. It is noticed that the countries which have recognised and value social enterprises, as a part of their economy, such as Belgium and Denmark, have achieved significant growth in employment and output while si-

12 Svetlana Gudkova, Simona Todorova, Yaryna Drobatyuk


multaneously addressing important social and environmental issues (Adding Value Delivering Change, 2010, p. 3).

In this article we will present the concept of social entrepreneurship, the advantages and benefits that social entrepreneurship is able to offer, as well as the potential challenges or obstacles, which may be encoun-tered. Despite the complexity, risk and responsibility, which are associ-ated with becoming a social entrepreneur, there are many examples of successful social businesses around the world. More and more people become interested in this social business model and establish their social venture. The second part of our article will provide examples of social business concepts, developed by the students of the Master in Manage-ment programme to address the social and environmental problems in different parts of the world.

The Concept of Social EntrepreneurshipTo get the in-depth understanding of the concept of social entrepreneur-ship first we need to understand the phenomenon of entrepreneurship. The classical theories of entrepreneurship, created mostly by economists, present the entrepreneur as an innovator, risk-taker and business-builder. According to Cantilon, the author of one of the first definitions of entre-preneurship, an entrepreneur is taking a risk by buying goods at a given price without having knowledge on the demand and the possible price which he will be able to achieve (Bjerke, 2007). Knight, inspired by the works of Cantilon, developed it further and introduced the differences between risk and uncertainty, which is a necessary condition for entre-preneurial profit. Risk exists when the outcomes of an action are uncer-tain, but can be assessed with some probability. In case of uncertainty, the final results cannot be predicted and the distribution of outcomes is unknown. Entrepreneurs must face uncertainty in order to earn profits (Knight, 1921; Brooke, 2010). Another classical scholar, Say, perceived the entrepreneur as a business-builder, who brings together the factors of production and organises the business activity (Bjerke, 2007).

According to Schumpeter (1934, p. 66), who is recognised as the most prominent classical scholar in entrepreneurship, economic development is a process of “carrying out new combinations in the production process” and entrepreneurs are those who are responsible, and whose mission and task is to implement these new combinations of resources. It is im-

Social Entrepreneurship: The Innovative Approach to Solving Social Problems 13


portant to emphasise that entrepreneurs are not necessarily the owners of an enterprise, but “they are responsible for introducing changes in at least one of the following ways: (1) the introduction of a new product or a new quality of product; (2) the introduction of a new production method; (3) the opening of a new market; (4) the acquisition of a new source of raw materials; or (5) the reorganization of a sector of activity” (Borzaga, Defourny 2001, p. 11).

Referring to contemporary definitions of entrepreneurship, Howard Stevenson (1983) defines entrepreneurship as “the pursuit of opportu-nity without regard to resources currently controlled”. Further explana-tion of this definition may be found in the article titled ‘What’s an Entrepreneur? The Best Answer Ever’ published in INC magazine in 2012. Its author – Eric Schurenberg presented a fragment of his conver-sation with Stevenson, who underlined that entrepreneurs “see an op-portunity and don’t feel constrained from pursuing it because they lack resources. (…) They’re used to making do without resources”. These are an opportunity and an idea of a high market potential, which play the central role in an entrepreneurial process. The lack of resources cannot be perceived as a serious barrier in establishing an entrepreneurial ven-ture. This definition has been widely recognised and developed by other scholars, such as Timmons and Shane. Timmons claimed that entrepre-neurship “is a process of creating and seizing an opportunity and pursu-ing it regardless the resources currently controlled” (Timmons, 1994, p. 7). Shane developed a more complex definition and defined entrepre-neurship as “an activity that involves the discovery, evaluation and ex-ploitation of opportunities to introduce new goods and services, ways of organizing, markets, processes and raw materials through organizing efforts that previously had not existed” (Shane, 2003, p. 4).

The concepts developed to describe commercial entrepreneurship may be applied for understanding the nature and the way of functioning of social entrepreneurship. Dees (1998, p. 2) claims that the understand-ing of social entrepreneurship should be based on the strong tradition of entrepreneurship theory and research. He underlines that “social entrepreneurs are one species in the genus entrepreneur. They are en-trepreneurs with a social mission”. The social mission is a unique feature, which brings distinctive challenges and makes the social entrepreneurs play the role of change agents. Dees identified five conditions, which a person should satisfy in order to be recognised as a social entrepreneur. These are the following:



• “Adopting a mission to create and sustain social value (not just private value);

• Recognising and relentlessly pursuing new opportunities to serve that mission;

• Engaging in a process of continuous innovation, adaptation, and learning;

• Acting boldly without being limited by resources currently in hand, and;

• Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created” (Dees, 1998, p. 4)

In 2003 Pomerantz wrote that “Social entrepreneurship can be de-fined as the development of innovative, mission-supporting, earned income, job creating or licensing ventures undertaken by individual social entrepreneurs, non-profit organisations, or nonprofits in associa-tion with for-profits” (p. 25), which can alleviate complex societal problems. This innovativeness often lies in a new combination of social and business practices. Taking the social value concept even further, Zahra et al. suggest clarifying its meaning by integrating “insights from research on organisational effectiveness” (Zahra et al. 2009, p. 530), because it represents a useful tool for measuring social entrepreneurship effectiveness. When taking the social value idea further, social entre-preneurs should be driven by social goals and should aim to contribute to the welfare or well-being of a given human community or address any other socio-environmental problem. Social value creation precedes the theoretically grounded understanding of value creation in the social context.

In 2005 Roberts and Woods developed a definition of social entre-preneurship, which is based on Stevenson’s approach to entrepreneur-ship. They defined social entrepreneurship as “the construction, evalu-ation and pursuit of opportunities for transformative social change carried out by visionary, passionately dedicated individuals” (Roberts and Woods, 2005, p. 49). The two most important differences compared to the original definition are the specificity of an entrepreneurial op-portunity, which should aim at transformative social change, and the competences of social entrepreneurs, who are people of a special breed capable of introducing social changes.

According to Kickul and Lyons (2012) “Social entrepreneurship is the application of the mindset, processes, tools, and techniques of busi-



ness entrepreneurship to the pursuit of a social and/or environmental mission. Thus, social entrepreneurship brings to bear the passion, inge-nuity, innovativeness, perseverance, planning, bootstrapping abilities, and focus on growth characteristic of business entrepreneurs on the work of meeting our society’s most pressing challenges”. Social entre-preneurs need to have the capacity to create significantly greater value for the world than conventional entrepreneurs. According to the OECD this value is usually associated with concepts such as ‘third sector’ and ‘non-profit sector’, which means that they aim to fight poverty and problems related to disadvantaged groups and communities, and emerges in the provision of community services, such as education, culture and the environment (Babos et al., 2007).

Despite the growing body of literature there is no one unified defini-tion of the concept (Peredo and McLean, 2006; Chell, 2007; Blount, Nunley, 2014). Dacin et al. (2010) analysed 37 definitions of social entrepreneurship found in the literature and identified their 3 main groups. The first describes social entrepreneurship as an activity of governments or non-profit organisations, which operate using business principles. The second group of definitions refers the concept to the activities of conventional entrepreneurs, who are involved in corporate social responsibility or organised philanthropy practices. The third group consists of the most narrow definitions, which treat social entrepreneur-ship as economically sustainable business ventures that generate social value (Dacin et al., 2010). Renko underlines that while a variety of definitions exist in the literature, they all focus on the primary goals of the process, which is the creation of social value (2012).

Over the course of history people have been engaged in different types of activities that today we call ‘social entrepreneurship’: minister-ing to the sick, feeding the hungry, teaching the illiterate to read, and so forth. Economic and social phenomena such as the spread of capital-ism, the rise of the welfare state, and the decline of the traditional fam-ily support structure have served to increase the demand for various social activities, which has caused them to grow in scale and level of sophistication (Kickul and Lyons, 2012). The ultimate purpose of social entrepreneurship is to create social value by improving the well-being of disadvantaged individuals.

Social entrepreneurship has gained wide recognition thanks to its unique business model and generation of a significant positive impact within our society, environment and for the entrepreneurs themselves.



Bornstein (2007) claims that “(…) more people today have the freedom, time, wealth, health, exposure, social mobility, and confidence to address social problems in bold new ways”. In the next part of the article the advantages and challenges of social entrepreneurship will be presented.

Advantages of Social EntrepreneurshipDue to its alternative business model social entrepreneurship has gener-ated a significant positive impact not only within our environment but has also brought a lot of advantages for entrepreneurs. According to Alter (2014) this positive impact emerged due to the innovative approach to solving social problems and the ability to combine the private and public aspects of business, thus creating double value – social and eco-nomic.

Private companies, small or big, are interested in pursuing business-oriented goals, while social ventures are driven by passion, the under-standing of networks and the power of co-operation. Tracy and Philips (2007) emphasise that social entrepreneurs need to not only acquire the same skills as traditional entrepreneurs, but they also need to learn how to overcome challenges such as management of accountability, manage-ment of double bottom line, and management of identity. The business approach of traditional entrepreneurs and social entrepreneurs differs substantially. Traditional entrepreneurs act and interact within the commercial sector they operate in; they are surrounded by people and organisations with which they share similar views of the world. Whereas social entrepreneurs need to communicate and interact with representa-tives of various sectors – social, commercial and governmental. The clients of social ventures might be people who cannot afford to pay for the product or service, or clients that pay, but that do not benefit directly from the product or service offered (Pache and Chowdhury, 2012). The biggest competitive advantages of social businesses are the uniqueness of concepts and their value proposition. Nevertheless, it must be under-stood that establishing and managing a social business is much more challenging than being a regular business owner and requires a great amount of work, dedication and strong passion to change the world. Below the main advantages of social entrepreneurship are discussed.

Satisfaction from implementing social change. According to Bornstein (2007) social entrepreneurs have the possibility to provide



the resources and expertise that help people and communities improve their life quality. As the main characteristic of social entrepreneurship is to raise social value, the most rewarding advantage of being a social entrepreneur is bringing positive changes to society. Social entrepreneurs can, like no other, experience a feeling of greater inner satisfaction from a job well done.

Greater agility and flexibility. As mentioned before, social entre-preneurship can be defined as the process of developing innovative ventures, thus it requires a continuous search for new creative solutions to social and environmental problems. This obliges social entrepreneurs to be more flexible, open-minded and keep thinking outside the box in order to explore and create innovative solutions that can inspire change. According to Kickul and Lyons (2012) social ventures are nimble and quick in adapting to changes thanks to their un-complex organisational structure. Their flexibility and awareness of the environment makes it easier for them to implement greater diversity in their strategy and op-erations.

Exploitation of networking power. Social entrepreneurship allows for networking to gain a new meaning: networks within the social busi-ness concept are built on a shared mission and vision for positive trans-formative change. Bringing people and organisations together to focus their attention on a social problem, gain resources and implement solu-tions that are built on the principle of ‘co-opetition’ (Brandenburger and Nalebuff, 1997). Building partnerships to generate a greater impact means that social ventures and their investors/partners do not have to choose between creating an impact or generating financial return, in-stead they benefit from both. Social businesses manage to understand that collaboration is important, because it makes their ventures more effective, sustainable and competitive (Kickul and Lyons, 2012).

Freedom to act. Being an entrepreneur means having the freedom to act according to one’s own beliefs and intuition. Social entrepreneurs are driven by their passion for problem-solving and openness to social activities. Combining social values with social impact and putting the stakeholders’ interests over those of shareholders brings the greatest competitive advantage to social ventures and differentiation over busi-ness ventures (Manuel, 2015).

Creation of jobs and income streams. Similar to any other type of venture, social businesses have a positive impact on the economy by generating new jobs and income often addressed to disadvantaged



groups. Unlike other ventures though, social businesses use their prof-its to benefit the community or social group that their operations are focused on. Social entrepreneurs are often engaged in educational prac-tices to increase the competitiveness of local employees through develop-ing their professional competences.

Challenges Associated with Social EntrepreneurshipThe impact of social entrepreneurship is difficult to overestimate. It is a powerful tool in the hands of passionate people lead by a willingness to bring change to the world. However, social entrepreneurship is a much more challenging process than traditional, commercial entrepreneurship, since it has to combine the ability to bring social and environmental change as well as profitability. Below the main challenges associated with social entrepreneurship are discussed.

Managing the tension between mission and margin. It is very difficult for social entrepreneurs to maintain a balance between the social mission and profit. Artin (2010), based on conducted research, claims that in some cases the mission or profit of a social enterprise may need to be compromised and making the decision on what and when needs to be compromised is often the challenge. Tension between mis-sion and profit may have a negative impact on decisions, employees, organisational culture and customer relations. One of the ways to miti-gate this tension is to establish a written set of guiding principles to show the stakeholders where the values of the business lie and what the busi-ness stands for. Creating such guiding principles in cooperation with the employees and board members, and communicating them to the stakeholders will help attract the right partners and avoid misunder-standings during cooperation (Lynch and Walls, 2010).

Raising financial capital. Every enterprise, for-profit or non-profit, requires financial capital to fund its operations. When social entrepre-neurs do not have enough financial resources to support their ventures they turn to other sources of financial funding. Funding can be acquired from financial institutions, business angels or venture capitalists, cor-porations and foundations. It cannot be denied that convincing any of the mentioned representatives to provide investment for a social venture’s operations is difficult. The key to success is to find the right people that will support the mission of the social venture.



Measuring the actual impact made by social ventures. Measur-ing the generated impact represents one of the greatest challenges that social entrepreneurs and social analysts encounter in their work (McLoughlin et al., 2009). Funders, investors and other stakeholders put pressure on social entrepreneurs to provide concrete data on the returns they can potentially get or are getting for their investments (Merchant and Van der Stede, 2007; Kickul and Lyons, 2012).

Being able to measure social impact allows entrepreneurs to assess their programmes and see clearly which actions create an impact and which do not, thus allowing them to better control and distribute re-sources (Kramer, 2005; Tuan, 2008). Tuan (2008) presents the cost-effectiveness analysis and/or cost-benefit analysis as reliable tools for measuring social impact. Moreover, Tools and Resources for Assessing Social Impact (TRASI), an online database that provides over 150 dif-ferent tools and evaluation approaches for measuring social value cre-ation, has been developed by the Foundation Center in partnership with McKinsey&Co (Kickul and Lyons, 2012). Even though no ideal approach has been developed so far, a great deal of research is being carried out continuously.

Challenges to growth. Often during the planning stage it is difficult to assess how the social venture will develop and grow with time. Nev-ertheless, it is very important to identify these goals and to create a clear message to be communicated to employees, investors and partners, so that they can have a clear vision for the future of the organisation (Dees et al., 2004). Growth is what is expected of social entrepreneurs, and investors expect that social ventures maximise their return on invest-ment (SROI). Challenges to growth can be both internal and external – Kickul and Lyons (2012) identified the following examples of internal challenges: stakeholders who do not see the need for growth, withdrawal of community support, inability to demonstrate impact, and an anti-thetical organisational culture and/or mission. At the same time they define external challenges as resistance from competitors in new markets and high switching costs in case the environment requires it. Achieving growth is difficult, thus many might ask ‘Why is it necessary?’ and the answer we find with LaFrance et al. (2006, p. 2), who have noted: “The primary purpose of scaling is to grow social impact to better match the magnitude of the need or problem a social entrepreneurship seeks to address, by increasing the breadth of impact (e.g., number of people served) and/or depth of impact (e.g., number or quality of services pro-



vided).” This said, scaling a social venture is the only way it can maximise its impact and bring the desired transformation.

Social ventures come across the same issues as traditional businesses might encounter while implementing their strategy, such as the concep-tualisation of the business idea, finding investors and financial capital, managing growth. In addition, social entrepreneurs have to solve prob-lems which are unique to their business model, such as ensuring the delivery of social value and measuring the venture’s social impact. The ability of social entrepreneurs to deal with these challenges together with a strong internal motivation to change the world often determine the success of a social venture.

Social Business ConceptsThe development of a successful social business concept, which will ensure the realisation of the social mission and achieving profitability at the same time, is a challenging task. However, there is a growing in-terest observed among young people, who are becoming more sensitive to environmental and social problems, to engage in social entrepreneur-ship. Below 5 social business concepts are presented, developed by the students of the Master in Management programme, specialisations: International Strategic Management and Management in a Virtual Environment (Kozminski University). These are: KULT+, PAN PSZCZOŁA (Mr. BEE), (UN)NECESSARY LAPTOPS, PIZZA PLACE and BY.MOM.

KULT+

SOCIAL PROBLEMS:

Uzbekistan is a country of great history and a rich culture, but there is a social problem to be solved. Despite the increasing interest among foreigners in the country’s culture, the local population of Uzbekistan has been showing a decrease in interest in and knowledge of the culture and cultural events. Young people prefer to stay at home or visit dif-ferent entertainment places, instead of learning about the local art and culture. Based on personal observations the project authors point out:



“(...) the number of visitors of galleries and museums in Uzbekistan is quite low, so low that they cannot sustain their own costs. Conse-quently, they are supported financially by the local government, or put in other words, by the taxpayers. The conclusion from this fact is that taxpayers, whether or not they choose to visit a museum, they pay for it anyway”.’

Tourists who visit Uzbekistan’s historical sites can use the services of tour guides, who mainly provide historical and cultural information. Local people, however, do not use tour guides, because they are too expensive for small groups of people. The core of the problem lies in the lack of navigation and information about historical and cultural events, which has a negative impact on the amount of people visiting museums and galleries nowadays. In addition, while commercial concerts are well-promoted around the country, art and thematic exhibitions are very poorly highlighted in the media if at all.

Entrepreneurs would like to tackle yet another issue in their project. Their aim is to give local craftsmen and artists an e-commerce mar-ketplace, where they will be able to exhibit and sell their products in front of potential international and local clients. A better and higher exposure of such products can provide more jobs, higher profits and increase awareness of the cultural traditions of Uzbekistan among both the national and international population. Another important social problem is the lack of support for talented disabled people in the region. The high rate of unemployment and lack of opportunities for disabled individuals are problems that can be solved and most of all – are worth solving!

BUSINESS CONCEPT:

The proposed solution is both simple and complex. KULT+ is a mobile application, which will provide information about cultural and art events happening in your area. Technically speaking, this solution will be available for devices with Android and iOS operating systems. The application will be translated and available in English, Russian and Uzbek. Users will be asked to choose their location (city) or allow for GPS-localisation when activating the app. Getting more insight infor-mation will become easier using the QR-code scanner utility, which will come in use when visiting museums, galleries or other historical sites. Other options within the application include: ‘Remind me’ – pro-



viding users with push-messages as a reminder whenever updates for events chosen by the user are available; ‘Around me’ – helping users find restaurants, coffee places, bars, fashion boutiques, theatres and cinemas near to their current location. It will also be possible to call a venue by simply clicking and connecting using the services of the mobile operator.

Providing the basic version for free, KULT+ will earn money from e-commerce initiatives and a paid premium version of the app. The KULT+ service range is grouped into two categories: an informative sec-tion and an e-commerce platform.

The application is supposed to provide information about cultural and art events within the user’s location including the following:• Concerts (any music type)• Master-classes and workshops on art or culture• Public lectures on culture• Fashion shows• Art and craft exhibitions• Museums expositions• Parties

Venues can attract more visitors by promoting their event or exhibi-tion via the application by paying a small fee for advertising. As a result they can gain more profit and thus independence from state-based fi-nancing. In addition, the navigation tool implemented in the app can help users locate venues more easily, thus motivating them to be active in the cultural life of their local community. Taking on the role of an information platform, KULT+ will make announcements about new and ongoing events, provide reviews and post pictures from events.

As a second added value, KULT+ will provide an e-commerce plat-form for artists and craftsmen. The objective of the platform is to enhance the sales of art works, while at the same time create more job opportuni-ties for people from the arts sector and contribute to the improvement of their socio-economic lifestyle. Talented disabled people will also be given the opportunity to sell their work to customers. In these cases KULT+ will not charge any transaction fees. The application is seen as a tool to popularise Central Asian culture around the world, while al-lowing local artists to get international recognition.

The greatest social value, which KULT+ aims to deliver, is to increase the number of employed disabled people in Uzbekistan, by giving them



the tools, the support and the stage to create their masterpieces and provide them with hope for a better tomorrow.

KULT+ is an ambitious project; its authors express their hopes as follows:

“It is natural that the KULT+ application cannot solve the employment issue of all disabled people; however, it can motivate other entrepreneurs and the local government to pay more attention to the current issue.”

Authors of the project: Sirojiddin Orifov & Paris Theomartin Turnip

PAN PSZCZOŁA (Mr. BEE)

SOCIAL PROBLEMS:

Since the late 1990’s, all over the world, populations of solitary bees are declining due to habitat loss, fragmentation and unhealthy environments filled with diseases, pests and toxins. Beekeepers and farmers all over the world observe this phenomenon called ‘colony collapse disorder’ with disbelief, while many of them run out of business.

Pollinators, most of which are bees, are responsible for the reproduction of over 80% of our flowering plants (Food and Agriculture Organization UN, 2015). If bees disappear, foods, which we take for granted, will de-crease in supply and their price will increase. It is estimated that more than half of the world’s food supply would be adversely affected, if the bee population was somehow reduced by at least 30 per cent (Green Life, 2015).

On the other hand, another pending social issue can be observed, which this project urges to solve – refugees’ exclusion from society in Poland. Since the beginning of the 1990s, a consistently growing inflow of foreign refugees in Poland can be observed. According to the Geneva Convention (1951), refugees are classified as a special group of migrants, which, as a result of fear of prosecution (because of race, religion, ethnic-ity or political views) are staying outside the borders of their home country. That is why it is very important to create and support a com-prehensive integration programme, which could meet the needs of all foreigner groups that choose to stay in Poland.

Even though foreigners with a refugee status are subject to the same legal regulations as Polish citizens when it comes to employment status and employment relationships, unfortunately, many of them struggle



to find jobs due to cultural, educational and language barriers. The ones who find jobs usually must face harsh working conditions or work for an hourly wage as low as 5 PLN, very often without receiving proper training or prospects of being reintegrated into society.

Pan Pszczoła has the mission to not only provide additional jobs at a fair wage for the socially disadvantaged, but also to make great efforts to reintegrate them into society and provide refugees with a brighter future outlook, while simultaneously promoting the idea of creating a more environmentally conscious society.

BUSINESS CONCEPT:

Pan Pszczoła is to be a Polish small social enterprise that designs and manufactures ecological bee houses, so-called bee hotels, and sells them through its company website. Using only natural products to build a habitat for the bees, the hotels are made from both reclaimed and For-est Stewardship Council1 (FSC) certified lumber, and are refined with water-based colours, which are good not only for the insect tenants, but also for the people who make them. Other materials used for production are straw, cane and bamboo, hollow bricks, pinecones, bush stems, clay blocks and branches.

In order to accommodate as many bees as possible, the hotel should be placed in a sunny spot, which is sheltered from the wind, preferably with exposure to the south or south-west. Each customer who places an order receives a small info booklet about the bees and their environment, and will learn how and where to place the bee hotel.

The bee hotels will be purchased through a website (www.panpszc-zola.pl), which will not only serve as an e-commerce shop, but will also have an informative and educational character. The main mission of the company is not the sale of bee hotels, but to raise awareness of the ‘bee cause’ (Friends of the Earth). Apart from bee hotels, habitats for other valuable insect species, such as ants or ladybugs, will be offered as well.

The social enterprise Pan Pszczoła will build the bug habitats in cooperation with the social cooperative Terra, an organisation that offers

1 The Forest Stewardship Council is an international organisation promoting re-sponsible stewardship of the world’s forests and natural habitat. The label ‘FSC’ helps consumers recognize products, which support the growth of responsible forest manage-ment worldwide (FSC, 2012).



activities for the professional and social reintegration of people threat-ened with social exclusion. Foreigners with a refugee status are subject to the same legal regulations and are entitled to the same employment relationships as Polish citizens based on an employment contract or civil-law agreements. The goal of this social project is to make the fol-lowing social impact:• providing additional workplaces for individuals – contributing to the

decrease in unemployment;• offering a fair wage to workers – contributing to the development of

better living standards for all people in our society;• helping the integration process of workers involved with our organisa-

tion – contributing to the creation of a more diversified and friendly society;

• taking part in the National Apiculture Programme by organising training courses and taking part in conferences – thus, contributing to raising awareness of problems concerning bees and their conse-quences;

• contributing to a more effective pollination of plants in our environ-ment – supporting a successful development of all seed and fruit plants in the areas where our product is implemented.

The authors of this project state:“Our mission is to stimulate the awareness of Poles about the significance of bees in our life, while at the same time helping people threatened with social exclusion by creating jobs for them. Our short motto being: ‘BEE conscious!’”

Authors of the project: Karolina Kochman & Simona Todorova

(UN)NECESSARY LAPTOPS

SOCIAL PROBLEMS:

Strong emotional attachment of people to the computer or other mobile devices has been observed over the years, as more and more people are relating their life to electronic devices. People tend to live in two worlds at the same time – the real one and the virtual world. Social media has become a great part of our everyday lifestyle – sending a file to the other



end of the world takes only a click. The globalisation and virtualisation of life provides the incredible opportunity to see and experience things that were impossible in the past – we can visit New York exploring it street by street, and a moment later buy shoes from an e-store in Paris, which are just perfect for our trip to Shanghai, which we bought online because of a promotion that we received in an advertising e-mail. These images might seem right, but they are not! At least not fully.

A report of the Central Statistical Office of Poland (GUS) from 2014 showed that nearly 77% of households in Poland have computers, used both for entertainment and working purposes (GUS, 2014). Moreover, 94% of enterprises use computers and 54% of employees use them to execute their everyday work tasks. This shows that computer skills are essential to find employment, and this trend will grow even more in significance in the future. The report continues by exposing the follow-ing data: “(...) average Poles between 16 and 24 years old have difficulties achieving Level 1(the lowest one) in the ICT technology usage test.” This shows that the average young person in Poland uses the computer only for Internet browsing and e-mailing.

The creation and exchange of information happens both in normal life and within the virtual space. Some information is safe to share in public, but some is very sensitive, like private pictures, financial docu-ments or intellectual property, and cannot be shared with the wide public. Nowadays people spend more time working with a computer than ever before, and they generate much more digital content, which needs to be protected.

Technology has a very short lifecycle nowadays, either because newer and better technology is produced faster than before or simply because all technical equipment has an expiration date, which is reached rather sooner than later. The question is, what should we do with all these devices? How many old mobile phones, laptops, and computer parts do we have in our houses? Should we keep them in our homes and promise to ourselves to sell them on eBay or use some interchangeable parts in the future? Throw them away? But what about the data it contained? Here is an answer to all of these questions!...

BUSINESS CONCEPT:

The proposed solution comes in the form of a company that aims to provide social help by lending computers to children whose parents



cannot afford to provide them with such. The market opportunity has appeared thanks to the fast renewal of technological devices, and com-puters in particular. The company plans to collect used laptops which do not fulfil the clients’ requirements anymore, followed by these two options:• Clients can donate their old computer and its hard disk drive (HDD),

which will be destroyed for free – the result: the computer will receive a new HDD and will be donated to kids.

• Any client can make use of the company’s services by destroying or cleaning their HDD, for which the company will charge a regular fee. The money will be used by the enterprise to buy new computers to donate to kids.

In order to provide the new hard disk drives and computers the com-pany will offer services in the permanent damaging of old computer HDD’s, CD’s, DVD’s, flash drives and memory cards – various data carriers (DC). In order to secure the data from being stolen or restored by scientists and hackers the social enterprise will use the innovative LiquiDATA technology to ensure a permanent destruction of the data carrier. This technique uses a powerful chemical reaction to turn any HDD into liquid, and is the only method which ensures that the data cannot be repossessed. It is used by banks, ministries and courts, where protection is crucial.

The liquid, which will remain after the melting process, can be used as a coagulant in sewage treatment plants. This adds environmental value to the business concept by creating a product that can be used to clean polluted sewers. Furthermore, the income from selling this liquid will provide additional revenue to finance the company’s activities.

The greatest social value of this social enterprise is created by sup-porting computer-aided education (CAE), which is considered a key element in improving the effectiveness and quality of the education system. Providing children from low financial income families with ac-cess to computers allows them to develop their computer skills and gives them a greater possibility to reach their full potential as individuals. Kids with access to computers have a substantially greater chance for positive prospects and development in the future.

The authors of the project explain:“The rule is simple – a computer is lent to a kid for a year. We will set

a grade average and if the kid maintains it, then the computer can stay



for one more year – if not, the computer must be returned, cleaned and passed to the next kid.”

Authors of the project: Natalia Figas & Filip Grudzewski

PIZZA PLACE

SOCIAL PROBLEMS:

Everyone sees the poor people around the city asking for money and looking through trash cans. Some might even want to share some of their money and help those less fortunate, but then everyone asks them-selves the same question ‘What will this person do with the money?’, and most of the time people assume that they will buy alcohol, thus they pass by pretending to be indifferent. The truth is, some people are actu-ally starving and really do need help. The lower class social group is typified by ‘poverty, homelessness, and unemployment. People of this class, few of whom have completed high school, suffer from lack of medical care, adequate housing and food, decent clothing, safety, and vocational training’ (Cliff’s Notes, 2015). The Central Statistical Office of Poland (GUS) states in the report ‘Poverty in Poland’ (2013) that people threatened by poverty are mainly households with unemployed individuals (especially when the person has a low level of education), households with large families, and households with disabled people. At the beginning of 2015 a nationwide survey was conducted to count the number of homeless people in Poland. According to the social as-sistance portal Pierwszy Portal Pomocy Społecznej (2015) in Warsaw there are currently between 2.5 and 3 thousand homeless people. The good news is that the percentage of people living at risk-of-poverty or social exclusion in Poland has been constantly decreasing since 2004. According to a document published by the GUS (2015), Poland has moved from a poverty risk of 45.3% in 2004 to 25.8% in 2013. Although this result shows a positive trend and continuous improvement over the years, it is still much higher than the results of countries in Western Europe. For comparison, Poland’s neighbouring country Germany had a risk-of-poverty rate measured at 20.3% in 2013, and the Czech Repub-lic and Slovenia appropriately at 14.6% and 19.8%, respectively, for the same year. Nothing shows the seriousness of a problem like statistical data, but the question is – how can we help solve it?



Social enterprises exist to solve the most challenging problems; one social entrepreneur has decided to tackle this issue and proposes an innovative business model, which raises awareness while bringing a pos-itive change to our society.

BUSINESS CONCEPT:

‘Pizza Place’ is a project set to be a small social enterprise, which will offer to its clientele single slices of pizza and beverages. The restaurant will be located in Warsaw City Center, preferably in the area of Nowy Świat or the Old Town. The main reason for this choice is that in this area a large number of students and tourists can be found regularly, and these two groups are the company’s main target customers. Applying a low-price strategy is expected to attract many customers and provide the business with a constantly increasing customer base. In order to support the low-price strategy the restaurant will offer a small menu, which will consist of the 3 most popular kinds of pizza – Margherita, Capricciosa and Pepperoni.

The main attribute, which differentiates ‘Pizza Place’ from other restaurants offering pizza, is the possibility to ‘Pay Forward’. Every customer will have the possibility to buy a slice of pizza alone for 3 PLN, buy it together with a beverage for 7 PLN, or to ‘pay forward’ for another person, where the cost per slice that the customer will receive will be 5 PLN, and with a beverage – 10 PLN. Choosing to ‘pay forward’ means that together with their order people pre-pay for someone in need to receive a slice of pizza as well. The customer will receive a small piece of paper, on which he or she can write a wish or draw something for someone. Afterwards the piece of paper is hung on a wall in the restau-rant and when someone in need comes all they need to do is choose a paper from the wall and present it to the staff of the restaurant as an exchange coupon.

Additional social value will be added by this venture through hiring people such as refugees, and/or homeless people who are experiencing difficulty finding work. What is more, staff members who do not have a home, will be provided with the option of arranged accommodation for a relatively low price, which will be subtracted from their monthly salary.

Diverse advertising strategies are foreseen in order to present and promote the company’s mission and vision. Initially, a fan page will be



created on Facebook, and at a later stage the company will also create its own webpage, where visitors will have the opportunity to contribute to the cause by donating money. Additional advertising will be organised through local newspapers and in public transport, especially the lines that pass through the city centre and near the restaurant’s location. Advertising signs and inviting slogans are also planned to appear in front of the restaurant in order to attract random people passing by.

‘Pizza Place’ will be the restaurant where people from different back-grounds can come in and enjoy a slice of good pizza, it will be the place where one’s social status does not matter and it will be the place that will promote support and acceptance for all. The author of the project expresses her vision for this business as to:

“(...) Change the mentality of people and teach them to help and support each other – making diverse communities reconnect and re-integrate.”

Author of the project: Yaryna Drobatyuk

BY.MOM

SOCIAL PROBLEMS:

In Europe we observe a constant decrease in demographics and a grow-ing aging population. Many governments are introducing new social policies to stimulate birth rates and ease the lives of parents and moth-ers in particular. Unfortunately, despite their efforts many parents continue to experience great difficulties when raising a child. In Poland, statistics show that in 2011 there were 2 174 300 single mothers, mainly from cities (GUS, 2014). The economic situation of single-parent fami-lies is much more difficult than that of average families. Single mothers must take upon the role of both parents and thus have much greater responsibilities and they experience greater difficulties when raising a child. The main responsibilities of a single mother include: providing financial security, running a household and taking care of the child. Being a single parent comes with great psychological pressure. Such individuals have to make decisions and resolve problems related to the maintenance of the household, education and future career path of the child, all while striving for a good work-life balanced lifestyle. Another



issue, which adds to the complexity of the single parent situation, is the fact that only 2% of Polish infants are able to go to public nurseries. Unfortunately, at the moment there is still a limited number of available places, and many mothers are ‘forced’ to become clients of private nurs-eries or stay at home together with their child, which prevents them from rejoining the workforce early and continuing their career growth.

BUSINESS CONCEPT:

By.MOM is a social enterprise, which focuses on assisting single mothers by providing them with a professional work environment where they can begin or continue their professional development and at the same time take care of their infant throughout the day by bringing the child with them to work. The venture will start operating in Warsaw, Poland, but it is foreseen to expand in all of Poland with time.

Who is eligible for working at By.MOM? Any single mom with a child between the age of 0–3, who is struggling and has no support network. The products that will be crafted by the single moms and offered to customers are handmade t-shirts and tote bags, with unique slogans, mottos and drawings. The shirts and bags will be created on demand in a work studio. By providing clients with a variety of fonts and different pictures, the products can be customised to the client’s taste and prefer-ences. The process of choosing the product and its features, together with the actual sale of the t-shirts and tote bags, will be possible via an online store, which will be created especially for this purpose. By.MOM will also create a social media platform where it will promote its brand and use it to raise awareness regarding parenting issues. In addition, the company foresees to create partnerships with various foundations, which help single mothers support each other, such as ‘Mama’, ‘Nadzieja’ and ‘Samotna mama’. Creating these partnerships aims to build a greater awareness about the social problem which By.MOM is aiming to solve, as well as contribute to a greater number of people willing to help and donate to the foundations as well as buy the products offered by the social enterprise. What is more, By.MOM plans to cooperate with famous women that have experienced difficulties through single motherhood and will be willing to help popularise this social issue, serve as an ex-ample, and encourage other women to stay positive. Examples of celeb-rities seen as future ambassadors of the venture’s mission and vision are: Martyna Wojciechowska, Alicja Bachleda-Curuś, Weronika



Książkiewicz, Dominika Ostałowska, Aneta Zając, Patrycja Soliman and Kinga Rusin.

To start out the business, the founders of By.MOM plan to use crowd-sourcing (wspieram.to and Kickstarter) to collect money for equipment and ensure the availability of facilities necessary for the company’s op-erations. In case crowdsourcing will be unsuccessful, the two founders plan to invest their own savings into the business. For an easier access to various resources, such as shirts, markers and paints, By.MOM plans to obtain sponsors, and in return for their help the enterprise will offer wide advertising of the cooperating brands through their social media channels, website, and leaflets.

By.MOM will help out single mothers not by simply providing them with a workplace opportunity, but also by providing them with knowl-edge about craftsmanship, e-commerce and company management, together with giving them a chance to try out different roles within the organisation. Therefore, women working for the company will gain a better understanding of what they want to do in the future. By work-ing for the venture, single mothers will not be excluded from the labour market, they will gain new knowledge, which will make it easier for them to find a new job or start their own business.

The authors of this project make a simple but clear statement:“When buying By.MOM merchandise you do far more than assist

a good cause, you inspire change.”

Authors of the project: Paulina Bedyńska & Wendy Bergman

Questions1. What are the differences between traditional commercial entrepre-

neurship and social entrepreneurship? 2. Can all of the business concepts described in the second part of the

article be recognised as social enterprises? Explain why?3. What would you improve in the presented social business concepts

to increase their capacity to deliver social value?4. What kind of social and environmental problems haven’t the social

entrepreneurs addressed so far? Design an innovative concept of a social business, which will aim to solve one of these problems.



Recommended Readings1. Kickul J. and Thomas S.L. (2012). Understanding Social Entrepre-

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2. Bjerke B. and Karlsson M. (2013). Social Entrepreneurship: To Act as If and Make a Difference. Cheltenham: Edward Elgar Publishing.

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Chapter 2

Dominika Wojtowicz, Anastasiya Tsyrulnykova

The Role of Social Networks in Establishing New Ventures

Introduction

Networks created by entrepreneurs are one of the most valuable re-sources of a business. It has been proven that business ventures can

gain significantly from the personal network of an entrepreneur. An effectively used network of personal contacts becomes crucial in the first stage of establishing a business: more new venture ideas, opportunities and potential competitive advantages may be recognised, screened, evaluated and – if appropriate – used by an entrepreneur. Furthermore, these networks provide not only information or advice, but also access to physical and financial resources, which may be extremely important at the very begging of a business activity. Personal contact networks, especially in the case of young entrepreneurs, are usually made infor-mally through social and non-business activities. These contacts may comprise family, friends, former work colleagues or even contacts estab-lished during education at primary and high schools, colleges and uni-versities. In this chapter we will focus on the role that personal contact networks may play in establishing businesses by students and graduates from universities. We will present six different case studies from two countries: Poland and Ukraine.

38 Dominika Wojtowicz, Anastasiya Tsyrulnykova


Entrepreneurial Networks: Definitions and TypesThe common perception of an entrepreneur is very much that of an individualist. Motivation, self-control and self-confident personal char-acteristics, as well as creativity and the willingness to take risks seem to be put in first place as the key factors that explain entrepreneurship and why individuals become entrepreneurs. Nevertheless, there is a lot of evidence suggesting that entrepreneurship is socially embedded in net-work structures and succeeding in business depends very much on the use of social networks (Aldrich et al., 1987; Johannison, 1987, Johan-nison 1996). The concept of social networks is based on the assumptions of a broader theory of social capital and helps explain the success of individuals and firms in their competitive rivalry. This approach tends to stress the role of social networks, as the actions of individuals and groups can be greatly facilitated by their direct and indirect links to other actors.

There is no one, universal definition of the network and networking concepts, however many authors, representing different disciplines, such as sociology, economy, managerial and organisational science, base their theories, paradigms and research on these concepts. Undoubtedly, there is a common agreement among most authors that networks play a crucial role in the theory and the practice of entrepreneurship.

Generally speaking, social networks can be defined as a set of indi-viduals who have social interactions (Kim and Aldrich, 2005). The entrepreneur’s personal network consists of a ‘set of ties linking several individuals and providing various types of exchanges’ (Sawyerr et al., 2003). These networks exist in different spheres of their activities and include different actors, such as members of the family, friends, other entrepreneurs, people working in customer and supplier companies, business services providers, finance professionals, lawyers and so on. A complex (although not comprehensive) categorisation of entrepreneur or potential entrepreneur interactions with different actors, existing in several environments, was proposed by Schott and Cheraghi (2012). An entrepreneur may benefit from relations within private, work, profes-sional, market, international and identity-based networks, as presented in the scheme below.

The concept may also be analysed within a dynamic perspective – in that case the entrepreneur’s personal contact network is perceived as a process of creating and maintaining connections with people, which

The Role of Social Networks in Establishing New Ventures 39


are believed to become crucial or helpful in the future (Iacobucci, 1996). Carson et al. (1995) identify the networking activity of entrepreneurs as a way of creating ‘personal relationships with particular individuals in their surroundings’.

Figure 1. Entrepreneur networks

Source: adapted from Schott and Cheraghi (2012); in: OECD (2015): Policy Brief on Expanding Networks for Inclusive Entrepreneurship (p. 4).

In the literature on the subject personal networks created and used in the business environment have been classified and characterised in several ways. The first categorisation refers to the strength of the rela-tions created by individuals with other people. There are two general types of network connection ties distinguished by Granovetter (1973): strong and weak. The strength of the ties is determined by a combina-tion of four factors qualifying the relationship: the amount of time spent together, the emotional intensity invested in the relation, the degree of intimacy, and reciprocal services. Networks based on strong ties are



those in which individuals trust and respect each other, and they have a common sense of cooperation. Strong ties are also characterised by a greater involvement in the time devoted to maintain the relationship between the two parties and by a higher similarity of social traits. This kind of bond is typical for relationships between family members and friends that have been tested by time and challenges. Whereas weak ties are characterised by lower time-sharing and less resemblance between the parties. Individuals do not necessarily share the same values as they do in the case of strong ties. Weak ties are those maintained with col-leagues, acquaintances and other people that the entrepreneur does not spend a lot of time with (Granovetter, 1973).

Close ties are found to be important and profitable in entrepreneur-ial networks. Some of the previous studies showed that entrepreneurs who had networks with a higher proportion of strong ties than with weak ones made more profits. For example, hiring people who are close to the entrepreneur reduces labour costs because their wages are lower than the market wages and they are more predictable (Johannisson, 1987; Zimmer and Aldrich, 1987; Aldrich et al., 1987). Furthermore, nascent entrepreneurs tend to use their strong ties more often than the weak ones. There are at least two reasons for that. Strong tied connec-tions seem to be more reliable, easily accessible and are more likely to provide concrete and valuable benefits. Furthermore, entrepreneurs can build new connections from the strong ties (Krackhardt, 1992; Burt, 1992; Aldrich and Martinez, 2001).

However, there is another approach presented in the literature on the subject, which points out that weak ties are more important for an entrepreneur than the strong ones. Granovetter (1973) argued that individuals whose networks (and, therefore, main source of information) comprise primarily family and friends (strong ties) are likely to have access to less information than individuals whose networks include many acquaintances (weak ties). Weak ties can act as a ‘bridge’, which spans between parts of a social network and connects otherwise disconnected social groups. In strong ties information is redundant, there is a trend for information to always circulate in the same way, whereas in weak ties information is always new, allowing for benefits such as improve-ments in finding key information or possibilities for establishing links with new people. Hence, for the diffusion and diversity of information across a network, the weak ties are the most valuable ones (Granovetter, 1973).



Another categorisation of entrepreneur or potential entrepreneur connections proposed in the literature on the subject distinguishes formal networks, which consist in relations with government agencies, banks, lawyers, realtors, chamber of commerce etc., and informal net-works, which relate to personal contacts with family, friends, business partners. As previous research studies have shown, entrepreneurs are likely to use informal network contacts more often than formal ones as a source of information for running their business (Birley, 1985; Lit-tunen, 2000).

Dubini and Aldrich (1991) argue that networks may be divided into personal and extended ones. Personal networks are centred on focal individuals and contain all those with whom the entrepreneur has direct or indirect relations (e.g., family members, friends, partners, suppliers, customers). Extended networks are centred on collective relations within and between firms, relations of individual members of those firms that either ‘are constructed by patterns of coordination and control’ or ‘fill boundary-spanning roles’.

Networks may also be distinguished by their size, which is defined as the number of different people an entrepreneur communicates with. Of course, a higher number of people provides more diversified informa-tion or other kind of support. This means that a higher number of contacts increases the chances of receiving and using different benefits for the growth of the business.

Another characteristic that differentiates personal connection net-works is their structure. Social contacts may be established by an entre-preneur through several types of relations or interactions. Scott (1991) makes the distinction between single stranded and multiplex ties. In single stranded relations the person plays one exact role for an entre-preneur (e.g. provide him with one particular kind of resource). Thus, the entrepreneur is related to that person through only one type of rela-tion. Multiplex ties have several layers of different content or types of relationships. These types of connections may play numerous roles and help an entrepreneur in many different ways. Not surprisingly, many researchers devoted their attention to the exploration of the effect of multiplex ties on entrepreneurial success. What was demonstrated is that social network members within multiplex ties contact and organise themselves, expanding the opportunities they make available to the entrepreneur (Burt, 1992; Hansen, 2001).



The Role of Personal Contact Networks in Establishing New VenturesUndoubtedly, entrepreneurs need to build personal networks as they create one of their main strengths. The network theory suggests that successful businesses might depend on the ability of the owners to gain access to tangible (financing, infrastructure) and intangible assets (knowledge, information) in a cost-effective way through personal networking. Social networks save time and facilitate a range of actions as well as access to resources and provide opportunities otherwise unavailable. The benefits of personal contact networks in a business environment include the provision of elasticity, limitation of risk, reduction of costs of activity. Moreover, Bratkovic et al. (2012) stated that entrepreneurial networks could help with overcoming different obstacles in a business world and even increase the efficiency of an enterprise.

Gudkova (2008) identified nine types of benefits for entrepreneurs provided by personal contact networks (Figure 2).

Figure 2. Benefits provided to entrepreneurs by personal contact networks

Source: Gudkova (2008, p. 71).

Even though networking is equally important to both young and mature firms, the role of personal networks as well as the benefits from their particular features vary depending on the stage of development of a business. Networking is perhaps more crucial than ever, as an estab-lished relationship can help in setting up a new venture. Previous stud-ies have demonstrated that both formal and informal networks are as-sociated with firm survival and appear to be significantly positively associated with the growth of newly established firms (Brüderl and Preisendörfer, 1998; Watson, 2007).

EMOTIONAL SUPPORT

MOTIVATION

SHAPING SELF-EFFICACY

IDENTIFICATION OF BUSINESS OPPORTUNITIES

KNOWLEDGE

PHYSICAL RESOURCES

FINANCIAL RESOURCES

INFORMATION

ATTAINING CUSTOMERS

BENEFITS PROVIDED TOENTREPRENEURS BY PERSONAL

CONTACT NETWORKS



As the main goal of this chapter is to identify and analyse the role of different personal networks at the early stages of establishing a business, we will go through all the phases assessing which of the above-mentioned benefits are crucial in each of the three phases of establishing a business. We assume that each phase requires a different emphasis on networking and each type of network may provide different benefits, depending on the specific needs appearing in the subsequent phases of starting up a business. The following phases will be analysed:1) the motivation phase, when entrepreneurs identify market opportu-

nities, discuss the initial idea and develop their business concept;2) the planning phase, when entrepreneurs prepare to set up a firm by

organising the necessary resources; 3) the establishment phase, when entrepreneurs establish and run a firm,

focusing more narrowly on the daily activities and solving appearing problems (Wilken, 1979).

Motivation

There are three very important advantages that personal networks may give to a prospective entrepreneur at this stage of setting up a business: (1) information of market opportunities, (2) evaluation of the business idea and (3) emotional support.

At the very begging of establishing a new venture, personal contact networks are usually used by entrepreneurs to gather and synthesise information from different sources in order to discover the high po-tential opportunities that they may benefit from. Opportunity-seeking entrepreneurs may collect second-hand information from their network as a supplement or substitute for making direct observations them-selves.

Once initial information on market opportunities is gathered, net-works are useful for validating them. Other people may be better than the entrepreneur at spotting hidden hitches since the entrepreneur may be strongly convinced of and committed to his or her new project, and therefore uncritical of it.

Personal contact networks at the first stage of setting up a business may also provide a person with emotional support, higher self-confi-dence and help in evaluating and understanding whether becoming an entrepreneur is indeed desirable and feasible (Linan and Santos 2007, p. 47).



There is a common agreement among researchers that in the ‘motiva-tion phase’ a close private network is where entrepreneurs primarily look for support (Krackhardt, 1992). When there it is a strong tie, it is easy for a person to go primarily to his family when he or she has an idea. There are several reasons why family and closest friends are those to talk to first, when one decides to establish a new venture. Firstly, family is helpful when it comes to fast and honest feedback (Rosenblatt et al., 1985; Aldrich, Reese and Dubini, 1990). Secondly, the people that an entrepreneur seeks information, advice or emotional support from must be trustworthy. Entrepreneurs search for a ‘protected environment’ to discuss their new business ideas, a kind of ‘sounding board’ assessing his or her ideas without the risk of stealing them. Thus, they limit the people who they talk to about the idea to their closest relations (Watson, 2007). And finally – last but not least – entrepreneurs limit their network to close friends and family, since they may not want to commit them-selves ‘publicly’ to any particular choice. In other words, if they were to discuss and share their idea with an expanded network, their intentions would become public, making it hard to withdraw from and give up one’s plans (Birley, 1985).

Nevertheless, it is important to stress that an entrepreneur who comes up with the idea to start up a business should not only concentrate on the people from his closest environment. By doing so, the information that a prospective entrepreneur is able to gather is very limited. Electively used extended networks based on weak ties are also important in provid-ing a ‘fresh’ view, different perspectives, new horizons as well as infor-mation that cannot be obtained from strong ties (Granovetter, 1973; Birley 1985; Renzulli et al., 2000). Also, access to elite social networks might be particularly useful for opportunity-seeking entrepreneurs, as this is where confidential information about high-value opportunities is most likely to circulate (Casson, 2010, p. 24).

Planning

In the ‘planning’ phase entrepreneurs start to use their personal contact networks to gain benefits that go beyond information on market op-portunities, idea evaluation and emotional support. At this stage the benefits from personal contact networks that an entrepreneur seeks mainly include: knowledge (1), financial support (2) and tangible re-sources (3).



While planning a new venture, more professional, sophisticated and specific business knowledge and know-how are needed, as the en-trepreneur starts to focus on concretes. According to Nohria (1992), in order to acquire the needed knowledge to deal with a start-up, entre-preneurs look for advice from people who share the same interests or from those who they know are experienced in new venture establish-ment. Specific knowledge on crucial sector issues can also be provided by prospective customers, suppliers and acquaintances who run their own companies and who are often the only proven source of knowledge about the market situation. This source of knowledge is much more credible and valuable for entrepreneurs than the information they get from TV, newspapers or books (Gudkova, 2008, p. 80).

Moreover, once an opportunity has been discovered and discussed entrepreneurs use their personal contact networks to obtain financial support. Loans obtained from family or close friends are the most com-mon way of getting financial capital by ‘fresh’ entrepreneurs. Also other forms of financial support like credit warrants (from a future business partner for example) or loans obtained from groups functioning on the basis of mutual borrowing may be provided thanks to the effective use of personal contact networks. Networks can also help entrepreneurs make contact with prospective financial backers such as business angels and venture capitalists (Casson, 2010, p. 25).

For an entrepreneur, the possibility of acquiring physical resources through personal contacts is particularly important, as financial resources are often very limited at the beginning stages of a business venture. People with whom the entrepreneur has strong ties (family, closest friends) often give or lend office equipment , such as furniture, comput-ers, printers or even assets of a greater value (cars or machinery). Some are guided by the unconditional willingness to help the nearest person, others operate on the principle of reciprocity (Gudkova, 2008, p. 87).

In order to gather knowledge, financial resources and tangible assets, entrepreneurs need to mobilise a larger social network. That is why, during this phase, they extend their personal contact network and spend a significant amount of time on networking (Greve and Salaff, 2003). During the planning phase, entrepreneurs may not know who can help them; they contact a large set of people that they might need in the future. Most of this network is likely to be present in the establishment phase. Their increased number of activities in the planning phase en-larges the discussion network. At that crucial point, efforts at building



and maintaining contacts are the greatest, requiring most time. While no single contact may prove decisive, the entrepreneur synthesises in-formation from different people and uses different sources to cross-check information. In this respect, belonging to multiple networks is advanta-geous, especially when the sources of information that need to be syn-thesised are very diverse.

Establishment

At the final phase of setting up a business, the key benefits that entre-preneurs may gain from their personal contact networks are: acquiring orders (1), creating a sense of self-effectiveness (2) and again – like in the motivation phase – emotional support (3).

Acquiring customers is one of the most difficult challenges that entrepreneurs face at the beginning of their business activity, as the invested money runs out shortly, and the cash flow generated from the sale is not sufficient to cover ongoing operating costs of the new company. Entrepreneurs who start a business acquire customers either through their already existing personal contact networks in the industry or through consequently and systematically creating new networks of customers. In the second case an entrepreneur relies on formal and in-formal ties and takes advantage of the rapid circulation of information.

The establishment of a new business may create a lot of stress for new entrepreneurs. Every day they will have to make risky decisions, deal with new tasks, cope with new clients, suppliers etc. Hence, emotional support and feedback from the closest people they know and trust that will give them a sense of self-effectiveness is crucial. However, it is worth stressing that in everyday problem-solving entrepreneurs seek advice and support from family members and friends. However, when it comes to critical situations entrepreneurs are more likely to search for advice from their business partners, who have a deeper knowledge of business activity and the market they operate on (Glinka and Gudkova, 2011, p. 177).

In that phase the networks used by the entrepreneur change. Once the business is functioning, entrepreneurs are inclined to limit their network to the key people that are able to provide resources and com-mitment (Chu, 1996; Hansen, 1995). Thus, entrepreneurs reduce the size of their social networks to important, helpful members, and spend less time networking.



Table 1. Types and benefits of personal contact networks in different phases of establishing a business

Predominant type of networks Main benefits from networks

Motivation Private network, strong, informal ties Information on market opportunities, assessment of business idea, emotional support

Planning Private and professional networks, weak, formal and informal ties

Knowledge (know-how), financial support, tangible assets

Establishment Professional, work and market networks, strong, formal and informal ties

Acquiring orders, emotional support and creating a sense of self-effectiveness

Source: own elaboration based on Gudkova (2008), Greve and Salaff (2003).

In the process of the creation and development of businesses entre-preneurs use already existing or newly created personal contact networks of different kinds: strong or weak, formal or informal, professional or private. Each phase of establishing a new venture requires a different emphasis on networking and diverse types of networks provide a variety of benefits. Properly created and effectively used networks of personal relationships to a great extent support the process of identifying and validating opportunities in the market, they enable access to the neces-sary resources, and finally provide the entrepreneur with emotional support and a sense of self-effectiveness.

Young Entrepreneurs Benefitting from Personal Contact Networks – Case StudiesMost entrepreneurs consider networking as an indispensable part of a successful venture establishment. Young people who are planning to establish their own venture use networks they created during their childhood, their school years or at their first job and they also intention-ally try to build connections with individuals that may help them. However, the impact of the use of personal contact networks on estab-lishing an own company may differ depending on the type of created personal contact network, the type of business, the personality of the entrepreneur and many other factors. Similarly, the benefits one can get from such a network may be either of a great or rather insignificant importance at the begging of the business activity. Below we have pre-



sented case studies that have been elaborated based on material gathered from 6 in-depth interviews conducted with Ukrainians and Poles. At the moment of interviewing the entrepreneurs were still studying or had recently graduated from university (up to 5 years).

Into the Wild

Into the Wild – is a relatively young but active company in the Ukrainian market. ‘Exclusive hand-made products, which are the result of the ef-forts of motivated professionals’ – this is how the owners of Into the Wild present their business. They produce handmade leather goods, such as bracelets, cases for iPads and iPhones, wallets, purses, notebooks, and covers for passports. On their official website we can read: ‘Our aim is to meet the needs of all our customers, therefore, we do special orders, and personal engraving if required.’ Into the Wild is proud to be chosen by people who understand the practicality and quality of a truly handmade and pretty unique product – stresses the founder and CEO of the company, Dmitriy.

Dmitriy is a 3rd-year student of the National Aviation University (NAU) in Ukraine. He studies telecommunication systems engineer-ing. However, his dream was to join a completely different academic institution – the Kyiv National University of Theatre, Cinema and Television. But, as the fee at the desired University was too high, Dmi-triy decided to apply to NAU with a scholarship. At the beginning of his studies he didn’t have an exact plan for his future career. An un-expected opportunity changed everything. Dmitriy once found an old wallet and felt eager to renovate it. He didn’t have knowledge on how to do so, nor the professional instruments; he just had scissors, a thread and a needle. It was the first time that he tried to work with leather goods – he did a great job and ‘after that, the desire to create did not disappear’.

Planning to establish a business, Dmitriy firstly sought advice from his best friend. Afterwards, he discussed the idea with people he had no close relationships with – to get objective feedback. Dmitriy also dis-cussed business-related issues with his cousin, who is a chief manager in a large company. He tried to properly analyse the information he gathered and to make a reasonable decision. Only after analysing all the opinions obtained from many different people he made up his mind to establish a company.



Dmitriy had no doubts that networking was very important for the development of his business at the very early stages. ‘It is great when you have a large circle of acquaintances, it opens new horizons. Very talented people, with a common ground and common interests, often randomly appeared in my life. I still do not know whether it is the result of my work and effort, or just fate. In any case, I am very grateful that I am surrounded by such diverse people’.

Dmitriy, finally, presented the idea to one of his close friends and suggested to work together – they have been developing the company together for more than a year. At the very beginning they didn’t have a business plan. Everything was developing at a relatively slow pace. The team invested their own savings into the project. All the information needed to proceed with their work – including the know-how on leather processing, tools and material suppliers – the founders looked for on the Internet.

The business was growing and even Dmitriy’s parents, who had been a bit sceptical from the beginning, appreciated his successes. Dmitriy believes that developing his own business was his destiny. There is no one in his family who is self-employed and he didn’t have any close en-trepreneurial friends when he started.

As the business was developing, Dmitriy found employees among acquaintances who needed a job. ‘I taught them my craft, showed the technique and they are working their best, improving every day. At first, I paid most of them with products, we didn’t earn a lot during that time’. At the same time, there is no way Dmitriy would work with somebody from his family: ‘It is unacceptable for me to work with family and close friends. I’ve started this business with a friend who used to understand me. After 1.5 years we needed to stop our cooperation, as our friendship disappeared and the value of the company was completely different for us. My friend’s level of responsibility and efficiency wasn’t appropriate for me. When you take the same amount of responsibility and your partner is not interested in the company’s development, it is very difficult not to reproach him for this, because we share profits equally’. Despite this hurtful experience, Dmitriy continued to hire people based on friend’s recommendations: ‘There is one sewing master, who my former classmate recommended to me. So far, he works responsibly and effi-ciently’.

During his University years Dmitriy had a lot of friends, which somehow also helped develop his career. Nevertheless, when it comes



to business-related discussions – Dmitriy didn’t share ideas with his University friends. ‘I’ve never asked [them for help], just showed the results of my own actions. I just wanted to hear and see the admiration in their eyes, because every creative person is pleased when his work is appreciated’.

Each day Dmitriy tries to make new contacts, get to know new people. The fact that he has always been active in the University life and performs arts seems to be helpful in the process of networking: ‘Networks are important. Two years ago I used to be on a stage, danced and joked, now I am one of the sponsors of such events held on campus. It’s good advertising’. Dmitriy’s participation in different projects played a sig-nificant role in his network development: ‘I once was a model for one of the Ukrainian clothing brands. We are still in touch and often go to festivals or fairs together, where I can sell our products’.

Dmitriy uses his ‘old’ personal contact network but also creates new ones. ‘In the process of doing business, I met a huge number of talented people, we share experiences among ourselves and try not to repeat the mistakes of others. My wonderful friend Roma is a photographer and has his own studio, where I can take pictures of a great quality for the website and social networks. The guys from the organisation Modern Ukrainian Movies, my old friends, helped us shoot a promotional video, which we will soon present. At the shoot with one of the photographers I met a hairdresser, Nikita. He works at a hair salon, where we introduced a small range of our products. And this list is very long. New friends are always helpful!’.

Dmitriy says that it is easy for him to ‘build bridges’ with people. ‘It is easy to ask for help, because there are many solutions to one problem. I often help people regardless of whether they ever helped me before. If there is an opportunity to help someone, I will definitely help or recom-mend someone who can help’. However, when he looks for a solution, Dmitriy would firstly listen to his best friends’ ideas. Dmitriy has a wide range of people with different backgrounds in his circle of friends. A lot of them he met while studying and participating in University activities, such as art festivals: ‘During my studies I met different people: engineers, event coordinators, entertainers, businessmen, journalists, programmers, and many others. I like meeting new people, unexpectedly you can meet a person very close to you in spirit or occupation’. Dmitriy summarises the importance of his connections by saying: ‘The more networks I have, the better it is – both for my business and for my life’.



EdEra

EdEra (Educational Era) — is an educational online platform, which provides people with the possibility to deepen their knowledge in a cho-sen field or to prepare future students for their University obligatory entrance examinations. At the moment there are 7 interactive courses available in Ukrainian Language and Literature, History of Ukraine, Math, Physics, English language, Biology and Geography. However, ac-cording to the words of the founder and head of the project, Ilya, in the future EdEra will not concentrate only on school subjects. The team works on preparing IT courses, which they want to be more competitive than any existing in the market.

The aim is to make the process of learning simple and engaging, based on the principle of explaining complicated issues in an understandable way. The entrepreneur believes that the ‘language barrier is not an issue’ when it comes to the IT-students who want to learn more than the Ukrainian universities can teach them. They can take courses on EdX, Coursera or any other course, provided by the most advanced techno-logical universities in the world. The team is aiming to change the general attitude that the diploma or certificate is what matters most. They want to improve the standard of Ukrainian education and change the system completely, and show people that the learning process can and needs to be attractive and of a great quality.

The idea of the project came in a rather specific moment, when Ilya was taking an online MIT course in Physics, preparing for the enrol-ment exams at one of the American Universities. He got his Bachelor at the Taras Shevchenko National University of Kyiv in the field of Radiophysics and he was preparing to study for his Master overseas. However, feeling inspired by the way knowledge is delivered, Ilya de-cided to stay in Ukraine and create a similar online course of high value by himself.

There were no entrepreneurial traditions in Ilya’s family, so he did not have any entrepreneurs to look up to. The first person Ilya shared the idea of EdEra with was his friend, with whom he planned to move to the States. Then he discussed it with a couple of people, with whom Ilya got in touch during the preparation for his enrolment exams. EdEra started to operate when there were 7 team members: almost all of them were Ilya’s University friends studying physics or IT. He also involved his sister, who specialises in IT.



Ilya is extremely critical when it comes to the lecturers he needs to collaborate with for the online courses project. He was looking for the right people (there were many requirements to fit) for 2 month among the students of the main Kiev Universities, asking his friends to recom-mend somebody who would be happy to get involved in the project. He needed people who could explain difficult topics in a simple way and pass on the enthusiasm for a subject to the student. In the end, the team members became online course lecturers and content creators at the same time. In order to get the knowledge and know-how on online edu-cation they took courses on EdX and Coursera, and then created all of the necessary materials by themselves. The content of these materials the EdEra team members usually discuss with lecturers from universi-ties, in order to verify some minor issues and provide feedback from the academic perspective.

His university friends provided all of the resources needed to start up the project. They organised the equipment to make the videos and even a place to work. From the very beginning of the establishing process, EdEra was financed purely by its members. Ilya still looks for people to be involved in the project. A lack of time makes it difficult for Ilya to devote to this activity, however – thanks to online social media networks students reach Ilya or his friends and offer their help in developing the EdEra project. They are usually asked to do simple work like proofread-ing, but in terms of the whole venture, the positive impact of these ‘little works’ should not be underestimated.

Running the business enables Ilya to establish new contacts: meetings with famous companies, conferences as guests and speakers, discussions with professionals and chats with students and volunteers – this is how the networking map grows day by day. Ilya and his partners have a vision and desire to raise Ukrainian education to a new, much higher level, change the system and create much cooler courses than the ones that are currently available online. They try to use all of their personal con-tact networks to achieve their goals.

GoGoJob

Despite his young age, Roman started his entrepreneurial career a cou-ple of years ago. He realised his first project called ‘Instune’ with the financial support from a venture capitalist after winning second place in a start-up competition when he was 15. However, due to the improp-



erly identified target group, it did not work out. The second project was an online platform for creating music duets. The prototype was created, but it turned out that there were no sufficiently advanced technologies to run such a project. At that moment, Roman (18 years old) decided to go find a ‘normal’ job. What he discovered was that the job-hunting market in Ukraine was messy, unstructured and definitely urged for changes. That made Roman think of his own business again and so the idea of GoGoJob came to his mind. The young entrepreneur recently launched a website, which helps people find a job and employers look for workers. Roman created an online platform, where people looking for a job can post their CV’s and attach personalised socionic character-istics, elaborated based on the results of a test that every user needs to take. On the other hand, employers who are looking for a candidate can check out what socionic type of a person will most probably fit the job they offer. This tool helps employers find a particular type of person with the required skills and it enables to contact them directly. Those who are looking for a job do not need to pay anything to post their in-formation, while employers need to make a payment based on the num-ber of profiles they want to be able to get access to (in the free version employers can see the profiles but without any personal information about the candidates, such as their telephone number or e-mail). GoGo-Job offers a fast and convenient matching service for employers and their future employees.

Roman is now a first-year Marketing student at the Lviv Management Institute. He is not very pleased with the quality of knowledge. Accord-ing to him, most of what he knows he learned by himself. When he started, Roman did not have friends that were qualified to ask for advice. He learned everything through mistakes. Additionally, his parents were not very happy with his entrepreneurial activities.

Roman involved his new University friend in developing the GoGo-Job project: ‘We met when he was studying Finance and wanted to start a business by himself. I suggested my idea, which I was planning to launch’. That is how Roman got the CTO (chief technical officer) in his team.

To test his business idea, Roman talked with many entrepreneurs to find out about their problems in job-hunting. ‘They did not exactly know what they need, so I tried to use socionics in the process.’ Roman used the information he got from the entrepreneurs he was interviewing to find an outsourcing company and socionics specialist. ‘We made a web-



site, gathered a team of socionics professionals and that is when the hard networking started. I have talked with almost all the best socionics professionals in the country. Some of them did not want to cooperate, others were very friendly and open.’

His previous experiences taught Roman how important it is to vali-date an idea with the target customers. Thus, he showed the web tool prototype to potential customers, collected their feedback, assessed it and implemented changes. According to Roman, entrepreneurs should always be flexible and ready to change the concept of their idea upside down to meet the market needs, rather than stick to an unprofitable idea.

Roman took the decision to engage his friend very carefully: ‘A busi-ness partner is a very important person – it is like a marriage for 5-10 years, you will spend a lot of time together’. All the other people that he needs to develop his business (e.g. professionals in socionics), the entre-preneur can easily find via Facebook or LinkedIn: ‘Everybody you need is on LinkedIn’. Moreover, he uses the social network to stay in touch with people he met at conferences or business meetings. Roman is con-vinced that hiring friends could be difficult: ‘They either do their best or not at all. It is hard to fire a friend, so you need to be careful when offering them a job’.

University did not provide Roman with many helpful contacts: ‘There is one lecturer, who understands how the market works and sees the ambitions in people, he is ready to help... but he is the only one’. His university friends have other interests in life and that is why they do not have many things in common.

Roman is very engaged in the entrepreneurial community in his hometown, Lviv, and in whole of Ukraine. He attends conferences, takes part in brainstorming sessions: ‘This whole business is built on network-ing. Nowadays, people come to conferences to talk with others, share knowledge, get feedback, and find valuable contacts. This is very impor-tant. However, the community of venture capitalists and entrepreneurs is small. Everybody knows everybody. If you defraud somebody, all the other entrepreneurs will know about it.’

Roman now is concentrated on GoGoJob. However, he sees it as a step towards something bigger: ‘Business is created to be sold. You earn when selling a business. This project is a way of acquiring resources, seeing things from a different perspective, getting the experience to make the next project bigger and generate more income’.



Ads in Social Media

Bartek is currently a third-year student of the Management programme at the Kozminski University. He started his own business in 2012, when he was studying International Economics at the Warsaw School of Eco-nomics. When he was a freshman, Bartek talked to his high-school friend, who was convincing him that developing and managing fan-pages – webpages where people can share information on a particular topic and discuss it – in social media (like Facebook) may be quite a profitable way to earn money. The friend himself was not an entrepreneur, but he started to administrate a couple of fan-pages on Facebook and offered them as a platform for advertisement for different companies. 3 years ago it was quite easy to attract followers, as the community had only started to grow.

At that moment, Bartek decided to invest in already existing fan-pages with a great amount of followers. It was his first business and he did not have any experience in the field. He conducted extended re-search and found all the necessary information on the Internet. He bought six fan-pages, each devoted to different topics, such as: alcohol, holidays or Polish soccer. The fan-pages had a total of 500,000 follow-ers, who were the target group of many companies. As Bartek was de-veloping the pages, they gained even more followers – the business was growing successfully. The entrepreneur was charging the companies that had advertisements appearing on the fan-pages. He was selling ‘space for ads’ on the online auction website Allegro. The price of an advertisement was calculated individually based on the number of posts and the amount of followers of the fan-page that was chosen as a plat-form for the advertisement.

However, this business stopped to be that profitable when Facebook introduced a new social policy, according to which information posted on fan-pages was not shown to all followers but only to 5% of them (the rate depended on the content of the post, links attached to it and graphic material). Companies – being aware of the change – became less willing to pay. Eventually, the income was not enough to cover operational costs and Bartek – after 1.5 years of running his business – decided to quit.

Bartek did not share the idea with many of his friends. None of them had a business at that time and even now there are not many entrepre-neurs among them: ‘The majority of them are people from rich families, who are involved in their family business’.



The only person the entrepreneur was discussing his idea with was his father – a successful entrepreneur, the owner of many different businesses in Poland and a business angel. ‘He did not want to do anything for me, he coordinated me and motivated to look for information by myself’.

The people that Bartek met at University were not really helpful in this business: ‘They respected the fact that I started something by myself, but they knew nothing about the industry, so they did not have any advice’. The entrepreneur didn’t ask them for any advice, having in mind that they were inexperienced and, most probably, their advice would not have been very trustworthy or helpful. ‘I do not see many people who have the potential to run a business with me. Probably, it is because of my personal feelings’. According to the entrepreneur, some of his university friends had a vast network of connections and significant capital, but they lacked the knowledge. Some had a potential to achieve something in the business world, but Bartek was not sure whether he could find a common ground with them. ‘It may be difficult to com-municate and solve money-related issues, establish a hierarchy. I like to work alone. I am a perfectionist’.

For Bartek it is not easy to establish new contacts due to his specific personality. However, the entrepreneur feels that he is in a good situa-tion – in case he is not able to find a good partner or employee within his own network, he can always rely on and use his father’s networks, which Bartek thinks may be very helpful in establishing and running his next business.

Haircology

Haircology is the first place in Warsaw that offers haircuts and hair stylisations with the use of only eco-friendly natural cosmetics. As stated on the official website: ‘We live in a world of short-term oriented prod-ucts that harm the environment and ourselves. That is why we created a place where we treat our clients’ and employees’ health with respect, at the same time decreasing the negative impact caused by humanity on the environment’. Haircology tries to create a special atmosphere for their clients, so that they will not feel like in a regular hair salon. A cosy place where they can enjoy a service of great quality and a cup of tea with a friend and/or hairdresser.

Julia was a student of the Kozminski MBA Executive Programme, when the idea came to her. After spending more than 10 years working



in a big corporation in the banking sector, Julia wanted to try herself in a completely new type of job. Julia was talking about her future when she quit her job at the bank. Together with her very close friend, who also quit her banking job, they came up with the idea to open their own business. Julia was aware of the growing trend towards everything that is organic. They were searching for an idea for their future business within this area: they even went to Germany and Sweden to see whether there was something in those countries that didn’t yet exist in Poland. The entrepreneurs found out that there was no such business as an ‘organic hairdresser’ in Poland and agreed to develop this idea. From the very beginning, Julia was sure that she would not be able to do this alone. According to her, working with a partner is always better: ‘You can share your doubts with her, making decisions becomes easier’. Julia has very trustful relations with the co-owner, as they have known each other for many years. Another person that Julia asked for advice before setting up her new company was her husband, who also runs his own business. ‘I do not ask him for strategic advice. He is a person that always cheers me up and takes bad emotions away from me.’ According to Julia, support of the family is very important: ‘He said that we should invest our own money. Otherwise, we would regret not doing so’. When it comes to Julia’s mother, she was rather sceptical: ‘My mother was con-cerned about how I could start this kind of business not being a hair-dresser myself. This was a frequent question that people would ask me. I always said that is the reason why I would be better, different’.

Julia did not really care for her friends’ opinions: ‘Some thought that it was a stupid idea, some were just jealous. They were telling me that I would not be able to hire the right people, because I am not from the industry’. Nevertheless, Julia sometimes discusses business related issues with colleagues from MBA studies: ‘They are 30–40-years old and have a huge experience in both working for corporations and establishing their own ventures’. Despite being able to collect some feedback from University friends, Julia did not use any connections from the Kozmin-ski: ‘I would not say that I have got many friends at the University; we do not have such strong connections. I am more connected to people from my previous work, they helped me a lot’. This is reasonable, as Julia started working during her studies at the Warsaw University (her bachelor degree). Julia got deep into the corporate world and was creat-ing networks with people she was working with. As a matter of fact, Julia was able to get the place for her hair salon at a very low price only



because of her connections: ‘The owner of the space that we are renting is a friend of our friend from our previous work (…). This man owns many properties in Warsaw, he is quite famous for this. We contacted him thanks to our friend, who recommended us as solid tenants. It was easier for us than for others. We have some special terms and lower costs’.

When establishing Haircology, Julia cooperated with a designer and marketing company that created the brand name and logo. ‘Apart from them, it was only the two of us. We did not ask anybody for advice, as we could discuss any issue among ourselves. There were many doubts, many moments when I was thinking that it may be too risky. That is when my co-owner was very helpful, encouraging me. It would be hard for me to do it all alone.’

The entrepreneurs organised an ‘opening day’ of the Haircology salon: ‘There were 20–25 people, mostly from my previous work. We were testing everything, giving free of charge haircuts to clients. Then we gave them questionnaires and collected their feedback to know what could be improved. Of course, we did not improve everything. Not ev-erything needs to be improved. You decide.’

Julia’s open personality enables her to establish and maintain friendly relations with many people. She prefers to have personal contact with a person and that is why she is not active in social media. Her network is growing day after day, and she considers that to be essential for the success of her business, as word-of-mouth marketing is crucial to attract new clients in the hairdressing business.

Julia is convinced that entrepreneurs must build as many networks as possible. ‘You need to talk to people. It is crucial, especially in the process of acquiring clients. If you are not able to do it – hire a person that will do it for you.’

Neuf Bijoux

Neuf Bijoux is a company established in 2012 in Warsaw. It offers dif-ferent collections of jewellery to its clients. Their mission is ‘to make sure that our projects are characterised by an original design and the highest quality. We believe that jewellery can be like an amulet, adding confidence and making one stand out in the crowd.’

Monika was a first-year student at the Kozminski University when she decided to start doing something on her own: ‘I was thinking that I want to do something, earn money’. Monika’s family and friends were



a little bit sceptical about the idea: ‘They were all telling me that I am still a child and do not need to earn anything’. Nevertheless, Monika decided to go her own way. Her passion was making bracelets for her-self and she noticed that they were quite popular among her friends. That is how Monika started making bracelets for sale. She was operat-ing alone at the beginning, but at a certain point she came up with the idea to establish a company and produce jewellery in a more profes-sional way.

The first person Monika shared the idea with was her best friend from high school – Asia. ‘We spent 3 years in a very great high school together. Everybody was studying hard, including us. However, we were more willing to do something besides studying. We stayed in touch even when we started to study at different universities. When I came up with the idea I was thinking that I could not manage the business by myself, so I suggested to her to do it together.’ According to Monika, they made a great team with Asia, complementing each other. Asia studied archi-tecture and had a creative approach, which helps in designing the jewel-lery and creating prototypes. ‘I can always draw some piece of jewellery on a napkin as I imagine it and Asia will transfer my idea to the computer programme and make it real’. On the other hand, Monika is a much more outgoing and open person than her friend. When Monika first suggested to Asia to start the company, Asia was not really convinced they were going to succeed. Nevertheless, Monika persuaded her it was worth trying and, indeed, everything worked out. ‘Asia is a rather closed person, she is not always open to new contacts’, says Monika. While for Monika it is easy to make new friends and she does not miss any op-portunity to do so.

At the very beginning, Monika tried to make a deal with beauty salons to put a stand with her bracelets there. She managed to cooperate with a couple of salons in Warsaw and other cities. However, as Monika and Asia decided to make everything professionally, they needed more employees and partners to make the jewellery. ‘I needed to hire people to make things I had no idea how to make’. They effectively used their closed network to find their subcontractors: ‘(…) when some of our friends or family members heard something about people we might need, they informed us straight away’. Finally, they started to cooperate with a jeweller, who was an acquaintance of Monika’s mother and – with the help of one of Monika’s friends – they found a company that specialised in making pendants.



Also, they needed an online shop. ‘I do not know whether it is the University that aroused a passion for marketing in me, but I was sure that we needed a Facebook page and an online shop’. Once Monika was in a café with her friend from University and he brought his friend along from another city. He turned out to be a great IT professional. When Monika asked him whether he could help her create an online shop, he agreed. Furthermore, he made it free of charge – Monika just gave him a couple of bracelets for his girlfriend. ‘We are still in good relations, he barely lets me pay for the maintenance of our online shop, so I provide him with my bracelets’.

Monika did not ask for money from her parents, so their initial in-vestment in the company’s development was limited to their own budget. Big companies did not want to cooperate with them, however, as the girls got more experience things went easier: ‘We understood that we do not need a jeweller, but a goldsmith, and we found one thanks to our acquaintances’.

When it comes to the ideas for the design of new products, Monika usually asks her younger sister for advice – who is 5 years younger – as well as her mother. ‘Our clients are usually women between 15 and 27 years of age. My sister knows what girls in her school like to wear, she is familiar with fashion trends and regularly reads fashion blogs. So when she and my mum approve of the jewellery I designed, I can be sure that almost all of our clients will love it’.

Monika didn’t use contacts from her University while establishing her business. The people she was studying with for her bachelor in Fi-nance and those that she met during her master study at the Kozminski University seem completely different to her: ‘You know, my friends from Finance were just kids at that time. Now at the master programme I have the possibility to discuss business-related issues with people and share contacts’. The great benefit that Monika sees in studying at the Univer-sity are the many valuable contacts she establishes, rather than the aca-demic knowledge she may get.

Monika was able to use her connections in the process of business development: the contact network she created gave a great chance to advertise her business among students and alumni. The lecturers turned out to be helpful too, as one of them inspired Monika to prepare a col-lection of bracelets personalised for the Kozminski students: ‘There is one lecturer who is teaching marketing – thanks to her you can buy my bracelets at the Kozminski shop’. Another friend from the University



recommended Monika a company, which specialised in photo cam-paigns. ‘They turned out to be real professionals’ and charged Monika a little less than the usual price, because of the friendly relations she managed to establish with the firm.

Monika is very enthusiastic in meeting new people and she encour-ages everyone to do so: ‘There are a lot of people from different areas, you should get to know them all’.

The presented cases showed how young entrepreneurs – in pursuing their business objectives – used different relationships within their en-vironment. And even though the benefits they obtained from their networks may vary, undoubtedly personal contacts played a significant role in the process of starting up and developing their companies.

Questions1. Are personal contact networks equally important in all the presented

case studies?2. What kind of ties did the entrepreneurs use (weak/strong; formal/

informal; single strand/multiplex) and what kind of benefits did they bring to the entrepreneurs?

3. What are the differences between the formal and informal networks in the presented case studies?

4. What kind of support did the entrepreneurs get from their families? To what extent was it useful for establishing and/running a business?

5. Do you think that all the entrepreneurs used their personal contact networks effectively? What other kind of benefits could they gain from their networks?

Recommended Readings1. Casson M. (2010). Entrepreneurship, Theory, History, Networks.

Northampton: Edward Elgar Publishing.2. Timperley J. (2010). Network Your Way to Success: The Secrets of

Successful Business Relationships. London: Piatkus Books.



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roles in entrepreneurial networks. Paper presented at Babson College Entrepreneurship Conference.

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Aldrich H.E., Rosen H. and Woodward W. (1987). The impact of social networks on business founding and profit: A longitudinal study. Frontiers of Entrepreneurship Research: 154–169.

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Bratkovic T., Antoncic B. and DeNoble A.F. (2012). Relationships between networking, entrepreneurial self-efficacy and firm growth: the case of Slovenian companies. Ekonomska Istrazivanja, 25(1): 73–87.

Brüderl J. and Preisendörfer P. (1998). Network support and the success of newly founded business. Small Business Economics, 10(3): 213–225.

Burt R.S. (1992). Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press. Business Management, 24: 45–51.

Casson M. (2010). Entrepreneurship, Theory, History, Networks. North-ampton: Edward Elgar Publishing.

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Dubini P. and Aldrich H. (1991). Personal and Extended Networks are Central to the Entrepreneurial Process. Journal of Business Venturing, 6: 305–313.

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Granovetter M. (1973). The strength of weak ties. American Journal of Sociology, 78(6): 1360–1380.

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Gudkova S. (2008). Rozwój małych przedsiębiorstw: wiedza, sieci oso-bistych powiązań, proces uczenia się. Warszawa: Wydawnictwa Aka-demickie i Profesjonalne.

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Hansen E.L. (2001). Resource acquisition as a startup process: Initial stocks of social capital and organizational foundings. Obtained from: www.babson.edu/entrep/fer/IV/IVB/html/Iv-B.html (10.01.2015).

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Chapter 3

Anna Pikos, Łukasz Czarnecki

Botnet Strikes Back: Entrepreneurial Risk Management

Introduction

Companies nowadays face cyber risk. Ulsch (2014, p. 13) calls it the ‘cyber Frankenstein monster’. Cyber risk, which is now a dynamic

and fluid challenge, affects computer networks, software and hardware. Austin and Darby (2003) indicate that it is estimated that security breaches impact 90% of all businesses every year and cost about $17 billion. This is a result of the development of technology, which is now available and easy to use. Because of advances in technology cyber-crime is perpetually evolving (Ulsch, 2014). The growing sophistication of the cyber space battle makes risk management an important issue for busi-ness success (Lam, 2013). Security breaches can disrupt operations, alienate customers, and damage reputations (Austin and Darby, 2003).

Malicious code, denial of service, and Web-based incidents are the most expensive types of cyber attacks. Risk management practices should be flexible and permanently adapted to the dynamic environment. Cy-ber security should be an integral part of this process (Lam, 2013). Many organisations are in denial of their sensitivity (Ulsch, 2014). According to Ulsch (2014) small companies ‘lack consistent and focused security, legal, regulatory compliance, risk management, and privacy expertise, complicating the process of following the many requirements mandated by law’, which makes cyber risk a huge challenge for them. Moreover, small companies have limited opportunities to observe the environment.

66 Anna Pikos, Łukasz Czarnecki


Usually they cannot afford to buy expensive analyses or market forecasts. Mainly small businesses rely on their own intuition or personal networks and they have limited financial resources (Gudkova, 2008).

Entrepreneurial Risk ManagementEvery business decision involves some risk (Pritchard, 2015; Lam, 2014) and risk is an immanent part of doing business. Entrepreneurial oppor-tunities motivate entrepreneurs to start new business ventures (Night-ingale, 2009). According to Dodd and Wang (2011, p. 2) ‘in the current and difficult economic climate many people are turning to entrepreneur-ship as an alternative to an unstable and insecure career’. Miller (1983, p. 771) claims that an entrepreneurial firm is the ‘one that engages in product market innovation, undertakes somewhat risky ventures, and is first to come up with “proactive” innovations, beating competitors to the punch’. They are convinced about the uniqueness of their idea, even if studies indicate that during the first year or two of operations many new business ventures fail. Literature also indicates that ventures face challenges that can decrease their profits and efficiency (Dodd and Wang, 2011). Therefore, entrepreneurs cannot just take the risk and succeed but they must manage it (Nightingale, 2009). In the opinion of Iaquinto and Spinelli (2010) ‘the larger your risk, the bigger the poten-tial fall and the more difficult the recovery’.

Therefore, there is a need to have a risk manager in large organisa-tions, who is responsible for risk management coordination (Hopkin, 2014; Spillan and Hough, 2003). Small ventures face a lack of resources and managerial skills (Storey, 2005; Barton, 1993) and have to perform several managerial functions at the same time together with the ‘risk manager’ (Dodd and Wang, 2011). Therefore entrepreneurs often wait till the very last moment to make decisions and when they meet crises they improvise (Dodd and Wang, 2011; Casson, 2005). Moreover, some entrepreneurs ignore the risk assuming that it will not affect their venture (Caponigro, 2000; Spillan and Hough, 2003). As stated by Iaquinto and Spinelli (2010) ‘successful entrepreneurs are risk manag-ers, not risk takers’. The mentioned authors indicate that while manag-ing risk, entrepreneurs should take into account their goals, character, experience, and the type of business. In their opinion, the more expe-rienced the entrepreneurs the better business assumptions and forecasts

Botnet Strikes Back: Entrepreneurial Risk Management 67


they make. Therefore, it is easier for them to overcome risk (Iaquinto and Spinelli, 2010).

Risk Risk management is a popular topic nowadays and it attracts the atten-tion of regulators, politicians, investors and the broader public (Wood, 2011). The risk management process helps organisations deal with un-certainty (Hopkin, 2012). It supports entrepreneurial spirit and assures that risk is fully understood and managed (Hopkin, 2012). Risk man-agement is a set of actions taken by individuals or corporations in an effort to alter the risk occurring from their business (Merna and Smith, 1996). According to Handy (1999) risk management ‘is not a separate activity from management, it is management… predicting and planning allow prevention… reaction is a symptom of poor management’. This process is systematic, structured and time-based and should be integrated in an organisation’s policy, management, culture, and other processes (Risk Management Standards: ISO/DIS 31000).

There are a lot of sources of definitions of risk. Risk is defined as ‘the combination of the probability of an event and its consequence’ (IRM, 2002). This is unlike uncertainty where the probability is unknown (Pritchard, 2015). Every organisation chooses the definition that is suit-able for its own objectives so it can be narrow or comprehensive. Usually it is defined as anything that can impact the organisation’s objectives. It is generally accepted that the best definition is provided in ISO 31000 (Hopkin, 2014). ISO 31000 defines risk as the ‘effect of uncertainty on objectives’. It may have a positive or negative impact and can be consid-ered as an opportunity or a loss. Risk may also result in uncertainty. Every risk has its own features that need specific management or analy-sis (Hopkin, 2014).

Risk Management ProcessISO 31000 has stated eleven principles that risk management should follow:• Create and protect value.• Be an integral part of all organisational processes.



• Be part of decision-making.• Address uncertainty explicitly.• Be systematic, structured and timely.• Be based on the best available information.• Be tailored to the needs of the organisation.• Take into account human and cultural factors.• Promote transparency and inclusiveness.• Be dynamic, interactive and responsive to change.• Facilitate continuous improvement to the organisation.

Risk management comprises the following steps (Risk Management Standards: ISO 31000; AIRMIC, ALARM, IRM, 2002; COSO, 2008) and all of them are continually carried on (Merna and Al-Thani 2008):1. Establishment of context. The organisation should express its

objectives and indicate its external (e.g. social and cultural, political, legal, regulatory, financial, technological, economic, natural and competitive environment) and internal (i.e. internal environment) factors that it should take into account while managing risk. More-over, the organisation should set the scope and risk criteria for evaluating important risks, reflecting the organisation’s values, objec-tives and resources (ISO 31000).

2. Risk identification. This is a critical step which is organised to find risks associated with any decision (Pritchard, 2015; Fraser and Sim-kins, 2010). If a potential risk is not identified at this stage it is omit-ted from further analysis (ISO 31000). According to ISO 31000 the aim of this step is to generate a comprehensive list of risks based on those events that might create, enhance, prevent, degrade, accelerate or delay the achievement of objectives. The key element is high-quality risk description. Risk should be described clearly and in depth to show the potential occurrence and its impact (Pritchard, 2015). Risk identification can be based on historical data, often categorised as credit risks, operational risks, market risks, technological risks, human behaviour risks or country risks (Fraser and Simkins, 2010). Various techniques may be used for risk identification. Some of them are commonly applied and include: documentation review, informa-tion-gathering techniques (including brainstorming, expert inter-views, the Delphi technique), checklists, assumptions analysis and diagramming techniques (Pritchard, 2015). What is important is that it should be assumed that not all risks will be identified and



there is a constant need for monitoring and reviewing (Fraser and Simkins, 2010).

3. Risk analysis. The purpose of risk analysis is to assess the range of possible outcomes of risk (Merna and Al-Thani 2008). It should provide the decision-makers with sufficient understanding of the risk, giving them a proper level of knowledge about the risk in order to make decisions on risk response (Fraser and Simkins, 2010). Risk analysis may be organized into consideration of the causes and sources of risk, estimates of likelihood of events, estimates of conse-quences of events, and estimates of the combined effect of likelihood and consequences according to the risk criteria (Fraser and Simkins, 2010; ISO 31000).

4. Risk evaluation. The aim of this step is to decide which risks need treatment and the priority for treatment implementation (ISO 31000). Every analysed risk is evaluated by comparing the residual risk after risk treatment against the risk criteria (Fraser and Simkins, 2010). If it is not possible to set a risk response that is satisfactory, then the risk is reviewed and it is determined if there is any possibil-ity to reduce the risk. We can find numerous methods of risk evalu-ation that include risk matrices, voting, subjective ratings, testing by focus (Fraser and Simkins, 2010).

5. Risk treatment. In this step the organisation must select one or more ways to deal with risks and implement them. This includes: assessing a risk treatment, deciding if the residual level is tolerable – if not, generating a new treatment and assessing the results of the treatment (ISO 31000). The actions can include (Fraser and Simkins, 2010):• risk avoidance• risk take or increase to pursue the opportunity• risk source change• likelihood change• impact change• risk sharing• maintenance of risk

The selection of an appropriate risk action should be based on a cost-benefit analysis. Risk treatment can bring new risks that need to be identified, assessed, treated and monitored (ibid.). The organisation should prepare a treatment plan to document the actions that it has undertaken.



6. Monitoring and review. Monitoring and review should be planned as part of the risk management process and along with risk com-munication and consultation, which are activities that are applied to the three steps of context, assessment, and treatment (ISO 31000; Fraser and Simkins, 2010). Monitoring and review are crucial to the continuous improvement of risk management and involve regular checking or observation.

7. Communicate and consult. Because risk has an impact on an organisation’s objectives, there is also a strong need for extensive communication and consultation with the stakeholders in the or-ganisation to ensure the accuracy and effectiveness of activities (ISO 31000; Fraser and Simkins, 2010).

Summing up, risk management should be an integral part of the management process. Moreover, it should fit the organisational environ-ment – both external and internal. And finally, it needs to be tailored to the business processes (ISO 31000).

An overview of the risk management process is presented in Figure 1.

Figure 1. Risk management process. Adaptation of ISO 31000

Source: own elaboration.

Establish the context

ASSESS RISK

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Analyse risk

Evaluate risk

Monitor and review

Com

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cons

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Treat risk



There are a number of benefits that risk management brings to the organisation (Murray-Webster, Office of Government Commerce, 2010), such as:• avoiding cost and disruption;• fewer sudden shocks and unwelcome surprises;• more efficient use of resources;• reduced fraud;• better service delivery;• reduction in management time spent fire-fighting;• more focus internally on doing the right things properly;• more focus externally to shape effective strategies.

We live in a complex world of the Internet and every minute of every day organisations face complex cyber risks aimed at getting access to valuable data (Ulsch, 2014). Technical complexity increases risk and it requires the development and implementation of new management strategies (Pritchard, 2015; Kendrick, 2010). IT systems now are fun-damental for business processes (Woods, 2011). Ulsch (2014) claims that many organisations believe that cyber attacks will not happen to them even though we can find more and more cyber risk stories in the press. He also indicates that there are some managers who think that their companies are too small to be the target of such an attack. However, nowadays, because of the World Wide Web, every company is global and is present in a 24/7 cyber world (Ulsch, 2014). That is why I concentrate on describing cyber risk in the next section.

Cyber ThreatContemporary organisations depend on information technology that can build their competitive advantage (Merna and Al-Thani, 2008). It drives economic performance and innovations (Merna and Al-Thani, 2008). To compete in the contemporary business world it is necessary to use the technology effectively (Nault, 2009).

IT is not only an indispensable element to an organisation’s survival, but also a disruptive one. According to Kendrick (2010) ‘organisations are seizing the opportunity to: market themselves through websites as opposed to conventional brochures; employ e-mail as a core business communication tool instead of traditional post; and supply goods and



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services electronically without the need for the physical presence of the consumer’. Quite often, web-based technologies tend to cause difficulties in understanding the essence thereof, which poses a range of threats to organisations, as they might be applied improperly (Kendrick, 2010). Because of cyber attacks, small to medium businesses lose half a percent of their revenues (Nault, 2009).

Kendrick (2010) divided risks associated with Internet technologies into three categories: technology risk; legal and compliance risk; and operational risk (see Table 1).

Risk can fall into one or more categories and these three groups of cyber risk overlap (Kendrick, 2010).

The risk associated with Internet technologies can result in legal proceedings, reputational and consumer relationship damages. This can be mitigated by the following actions (Kendrick, 2010):1. Technology risk: the deployment of up-to-date anti-virus software,

adequate encryption facilities, educated personnel.2. Legal and compliance risk: observance of the statutory or regulatory

provisions governing the circumstances.3. Operational risk: assessment of the level of expertise at the organisa-

tion’s disposal, recruitment of suitable personnel.

Cyber risk management is not a task for IT managers, but one for business managers who will have to deal with the consequences of se-curity breaches. Therefore, they should implement preventive measures (Austin and Darby, 2003). Business managers should ‘assess the business value of their information assets, determine the likelihood that they’ll be compromised, and then tailor a set of risk-abatement processes to particular vulnerabilities’ (Austin and Darby, 2003). The goal is to re-duce risk to an acceptable level (Austin and Darby, 2003).

Ulsch (2014, p. 8) claims that ‘the technologies that convey the at-tacks are far more powerful than those that placed astronauts on the moon, and so affordable that almost anyone can afford them’. What we can do is make sure that we will face less cyber attacks and thus it is crucial to integrate cyber risk management into the framework of or-ganisational management.



Great Business Resolutions – A Victim of Cyber AttacksThe company named Great Business Resolutions (GBR) was founded in 2001 in Poland, by a young 18-year-old entrepreneur Maciej Bronisze-wski1. Maciej was very interested in new technologies. At that time, when he just took his first steps into his adult life, he dreamt about the possibility to work wherever and whenever it would be best for him. He wanted to be an entrepreneur, but he did not have enough resources. He decided to gain some experience and money by helping companies take their first steps with the Internet. After a few months, at the time of his matriculation examination, he decided to set up his own company. His parents were not happy about that fact, because they believed in a tra-ditional way of life: go to school, go study, and then find a stable job. Maciej passed his matriculation examination successfully – with quite good grades, and while preparing for his university entrance examina-tions, he established his own business. The main reason behind his decision was the set of specific skills he possessed: he knew how to eas-ily promote websites on the still-very-young Internet market. About 50% of the revenue was coming from web design and webhosting services, the rest was coming from Internet marketing-related activities. Since the first months of operations, the company was earning decent money. The one-man founder and CEO of GBR employed friends and worked with them. From his perspective, this was much safer, and would guar-antee smooth and enjoyable teamwork within the company. At the same time, Maciej also created a network of about 40 freelancers who helped him provide services to his customers. Despite a low margin and a min-imum level of investments, he was able to make a decent profit.

One of the key employees was a system administrator called Greg, who was responsible for setting up webhosting servers, as well as for the security of those servers. He did not complete any school or course, he was a talented self-learner. Greg was a close friend of Maciej. They met each other in kindergarten, and after that they continued to be in the same class in primary and in secondary school. This is why it was so easy for them to start working together. One of the advantages of that coop-eration was the fact that Greg’s salary at the time was lower than that of any other server administrator. Most of the time, there were no issues

1 All the personal data and the name of the company have been changed to ensure anonymity.



regarding the webhosting services, and the customers were satisfied, especially since they were little aware of their hosting needs and of the quality of the available services.

Throughout 3 years of cooperation, there were only a few incidents with the servers, mainly caused by the lack of experience of the admin-istrator (Greg was the same age as the CEO). For instance, one of the incidents was that the SQL server did not respond because of insufficient resources. Another incident was caused by a wrong configuration of the email server, which resulted in spammers using that server as a gate for email spamming. Additionally, one of the issues with the core server configuration led to a situation where the whole server environment needed to be rebuilt and as a result, some of the clients were not able to access their websites and read or send emails.

Also, Maciej found the fact that Greg liked experimenting with barely legal software to spy, track, and scan ports of different computers or servers to find vulnerabilities and use them for own purposes quite ir-ritating. It made the administrator able to share the results of his ex-periments on the IRC (Internet Relay Chat) channel to win some rec-ognition. As soon as the CEO realised what Greg was doing, he forbade it. But the CEO’s knowledge was not enough to check if the GBR servers were used according to their purpose.

While the company was growing and attracting more new customers, it became clear that there was a need to rebuild all of the hosting re-sources. There were two main factors behind that decision. First of all, it was the necessity for a faster connection, and second, the need for more space and better server performance. After some time, the servers were moved to a new place – to one of the university basements. The service was provided by an external company which cooperated with that university. At that time, the university had a fast Internet connec-tion, which was perfect for the growing potential of the company. What is also important is that it was one of the cheapest places with that con-nection speed in Poland in that period. There were, however, some disadvantages associated with that place, such as the poor ventilation system (the temperature in the server room was about 40°C), only one kind of Internet connection, and the fact that the company responsible for taking care of the servers was based 20km away. There were some issues because of the personal differences between Greg and Maciej, but eventually the final setup was completed, and the servers were running fast at last.



After relocation, the quality of the provided services, especially the connection speed, improved greatly. While the company was changing locations, the Administrator informed the CEO that he decided to assign name servers (DNS) to one server in order to save time on configuration – but only for a short period of time. This created a huge risk. In case of any problems with the main server, all the other servers would not work properly. The DNS servers are responsible for keeping information about where a given domain should point to. When someone inserts the Great Business Resolutions address his Internet provider tells his browser to go to ns1.gbr.com or ns2.gbr.com, then the name server (DNS) tells where (on which server and IP) the website is kept. But in the case of Great Business Resolutions the problem was that ns1.gbr.com and ns2.gbr.com were kept on the same physical machine. So in case of any problems with that machine consumers would not be able to reach the websites. Usually every hosting provider has at least two name servers based on two different physical machines.

After some time, the CEO found out that the Administrator was us-ing the high speed Internet connection to build a big botnet (a net with computers infected by special software, which could be used for hostile activities on the Internet). Botnets are used for illegal access to servers, commonly named DDOS (Distributed-Denial-of-Service). The main purpose of such access – or rather attack – is to disable the targeted server by sending thousands or even millions of queries at the same time to that server.

Maciej asked Greg to remove all of that software from the company’s servers. The Administrator cleaned all such software from the servers, and transferred his botnet host to a different server.

One or two months later, the Administrator started to get involved in some fun using his botnet to ‘fight’ with his friends (who also had their own botnets). They were trying to disable each other’s systems, which was some kind of a hacking game. The problem was that Greg had the most powerful botnet, so they couldn’t beat him. The Admin-istrator’s opponents lost a lot of their renown within their IT community. Later on, Greg’s botnet’s opponents decided to use the knowledge of the Administrator’s workplace. As their target, they chose the main server of GBR. This led to some considerable changes in the network structure of the targeted company.

First of all, all DNSs were kept on the selected main server, so with-out that server, all the other servers were useless. All websites at that



time were offline, and no email inbox worked. The whole potential of the company went down right away; all of the company’s customer websites were inaccessible, as well as the websites owned by Great Busi-ness Resolutions. Many of the consumers decided to move their websites to other hosting companies.

Furthermore, during the attack, the university cut off the IP of all the servers belonging to the company, and asked the company to leave.

Finally, almost the entire potential and reputation the company built over the years was lost. Most of the customers decided to choose differ-ent hosting companies. It caused about a 90% drop in revenue in the part of the company’s business focused on webhosting and related ser-vices, and about a 30% drop in total revenue. But there was a bigger problem. Because of the period of two weeks when the company was not operating, many of the company’s internal projects went down. Most (70%) of the company’s revenue at that time was generated by websites owned or co-owned by the company. Those two weeks of unavailability reduced that revenue by 80%, and it was impossible to rebuild that po-tential.

To prepare GBR for such a risk in the future Maciej decided to move the servers outside of Poland. There were a few main factors behind this decision, the effects of which aimed to help build a new service quality for the company: 1. In the USA there were several big companies that offered much

cheaper services than those available in Poland at that time.2. Almost all of those companies provided a much more efficient safety

system, so they could defend the servers against such attacks.3. They provided their own machines with a guarantee of 30-minute

restore time.

Maciej chose one of the most reliable companies in the USA to move the server to. It took about 7 days to set up everything in a new coloca-tion centre in the USA, and another 7 days to have everything restored. But for a hosting company, 14 days is like a few months in less dynamic branches. A new person was hired to manage all tasks related to the relocation, and the cooperation with Greg was ended.

Greg was not happy about it, but he felt guilty and helped with all the tasks during the relocation period. The new person – Michael – took care of all the systems. One of the most important changes was to split the DNS between 2 machines. One part of the DNS was kept on the



company machine, but the second part was kept on a safe and stable paid server, in a different physical location.

When everything started to work again, there were still attackers trying to disable the company’s servers. The attacks in a high peak took more than 700 Mbps. At that time, the average household connection speed was about 128Kbps. After one week, the attack was thwarted, and the systems cut the attackers off.

Thanks to professional service and much more efficient hardware used in the new hosting locations, all the attacks were foiled. Such attacks were treated very seriously in the USA. It should also be pointed out that the new dedicated servers were more powerful than all of the previous ones altogether. The Internet connection speed was much faster than at the university. And all of that was at a similar or even lower cost than what the company had to pay the university. Moreover, the people who Greg thought were responsible for the attacks were arrested in Poland.

The company was not able to regain its position in the market because most of its key clients were lost – they could not accept that long period of inactive websites. For Great Business Resolutions that was the begin-ning of hard times. The costs remained almost at the same level, but the revenue was much lower.

After some consideration, Maciej decided to change his business model, and move away from hosting services and website design to on-line marketing activities, with particular focus on search engine opti-misation (SEO). But this required a downscale. Maciej decided to open an Internet cafe – where people could play games, browse the Internet, and use computers. His idea was to create a different stream of income, and use old servers as computers for the Internet cafe. The place he rented had two big rooms, so he adapted both of them for the new purpose, one for the Internet cafe, and the second one for a computer shop.

The people working for GBR at that time had to be laid off or switch to remote work. Maciej still had faith in people, so he hired his cousin, David, as a shop assistant. David was very happy that he could work with computers (up to that point, manual labour was his main activity). He was talented and had a will to learn.

The first few months of operations were quite successful, and the shop generated some revenue. But Maciej had to focus more on that business, so all online marketing activities were a little neglected. In effect, GBR did not gain any new customers interested in online market-ing services at that time.



Maciej then decided to focus more on the online marketing business. He knew that David could take care of the shop and run it successfully. After 5 months of cooperation with Maciej, David was called up to the army. Maciej had to postpone the planned online marketing expansion because of the need to hire and train a new shop assistant.

A girl named Milena was hired. She was an open and easy-going person that could be helpful in the sales process. The customers liked her very much. One day, when Maciej left her alone in the shop, she prepared two sets of computers. When Maciej came back, he found out that the first computer had three motherboards and two graphic cards, but no CPU (Central Processing Unit), and that the second computer featured a similar setup.

After some time Maciej realised that Milena did not have IT skills, but she was still good at selling. He decided to dismiss Milena and hire an IT specialist. This turned out to be a mistake, because he was not able to build a relationship with the clients. The company’s sales de-creased. Maciej should have kept Milena and additionally hired an IT specialist, which would have guaranteed both a good quality of services and an effective selling process.

GBR changed its profile a few more times until it was closed in Oc-tober 2013. Maciej has also founded 3 other companies so far. He has made hundreds of mistakes, but he knows how to learn from them. At present, he manages a huge ERP system for a big company, and is still looking for new opportunities to start another business...

Questions1. Does the business model affect the exposure to risk? If so, how? 2. Discuss the mistakes that Maciej made in the different stages of

company development? 3. If you were Maciej, what information about the cyber attack would

you share with your clients and the media? 4. What system should be established to ensure effective risk manage-

ment in the company? Give your recommendations.



Recommended Readings1. Hopkin P. (2014). Fundamentals of Risk Management. Understanding,

evaluating and implementing effective risk management. Kogan Page Limited.

2. Wood M. (2011). Risk Management in Organizations. An integrated case study approach. New York: Routledge.

3. Austin R.D and Darby C.A.R. (2003). The Myth of Secure Comput-ing. Harvard Business Review, June.

BibliographyA Risk Management Standard, AIRMIC, ALARM, IRM, 2002.Austin, R.D and Darby C.A.R. (2003). The Myth of Secure Computing.

Harvard Business Review, June: 140.Barton L. (1993). Crisis in Organisations: Managing and Communicating

in the Heat of Chaos. Cincinnati: South-Western Publishing Com-pany.

Caponigro J. (2000). The Crisis Counselor: A Step-by-Step Guide to Managing a Business Crisis. Chicago: Contemporary Books.

Casson M. (2005). Entrepreneurship and the theory of the firm. Journal of Economic Behaviour and Organisation, 58(2): 327–348.

Dodd S. and Wang Y. (2011). Prince2 And Entrepreneurship: Risk Tak-ing & Risk Management in Two Micro-Sized Restaurants. UK Acad-emy for Information Systems. Proceedings 2011.

Fraser J. and Simkins B.J. (2010). Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives. Hobo-ken: Wiley & Sons.

Gudkova S. (2008). Rozwój małych przedsiębiorstw – wiedza, sieci oso-bistych powiązań, proces uczenia się. Warszawa: WAiP.

Handy C. (1999). Beyond Certainty: The changing worlds of organisa-tions. Boston: Harvard Business School Press.

Hopkin P. (2014). Fundamentals of Risk Management. Understanding, evaluating and implementing effective risk management. Kogan Page Limited.

Iaquinto A. and Spinelli S. (2010). Never Bet the Farm. How Entrepre-neurs Take Risks, make Decisions-and How You Can, Too. San Fran-cisco: Jossey-Bass.



ISO 31000:2009 Risk management – Principles and guidelines.Kendrick R. (2010). Cyber Risks for Business Professionals. A Management

Guide. Ely: IT Governance Publishing.Lam J. (2014). Enterprise Risk Management. From Incentives to Control.

Hoboken: Wiley.Merna T. i Al.-Thani F.F. (2008). Corporate Risk Management. Chiches-

ter: John Wiley & Sons.COSO Internal Control-Integrated Framework, Guidance on Monitor-

ing Internal Control Systems, Introduction, 2008.Merna A. and Smith N.J. (1996). Projects Procured by Privately Financed

Concession Contracts. Asia Law & Practice, 1: 2. Miller D. (1983). The correlates of entrepreneurship in the three types

of firms. Management Science, 29(7): 770–791.Murray-Webster R. and Office of Government Commerce (2010). Man-

agement of risk: guidance for practitioners. Stationery Office.Nightingale T. (2009). The Risk–Managing Entrepreneur. The Independ-

ent Consultant: 28.Pritchard C.L. (2015). Risk Management. Concepts and Guidance. Boca

Raton: Taylor & Francis.Spillan J. and Hough M. (2003). Crisis Planning in Small Businesses:

Importance, Impetus and Indifference. European Management Jour-nal, 21(3): 398-407.

Storey D.J. (2005). Understanding the Small Business Sector. London: Thomson Learning.

Ulsch M. (2014). Cyber Threat. How to Manage the Growing Risk of Cyber Attacks. Hoboken: Wiley.

Wood M. (2011). Risk Management in Organizations. An integrated case study approach. New York: Routledge.


Chapter 4

Aleksander Maziarz, Maryna Hrynivetska

Legal Aspects of Starting Up a Business in Selected EU Countries

Introduction

Starting up a business means implementing the principle of economic freedom existing in each of the countries of the European Union. This

means that any person may at any time start up and discontinue eco-nomic activity. What is more, this rule assumes that the economic deci-sions made by this type of entities will be free from State interference. It is also noted that the principle of economic freedom means that public authorities should create the material conditions for entrepreneurs to take up and pursue economic activity (Strzyczkowski, 2011).

Taking up economic activity involves its registration in the appropri-ate register kept by the public authorities. The registration of an entity in the public registry means that such an entity can perform a business activity. However, the legal regiments associated with such a registry vary in each EU country. It should be noted that the EU law does not address how to register a business, leaving the development of such regulations up to the respective Member States. This means that each Member State may adopt its own solutions in this area.

It should be noted that national regulations in this respect may sig-nificantly contribute to the development of entrepreneurship. Compli-cated registration procedures and high administrative costs can deter potential entrepreneurs form starting up a business. It is also worth noting that easy registration is not the only factor that encourages en-

84 Aleksander Maziarz, Maryna Hrynivetska


trepreneurs to start a business. It is important to see how the Member States support entrepreneurs with their first legal requirement – the registration of a business. Therefore, it is important whether or not newly registered business entities receive support from public authorities in the form of, for example, accounting assistance, preferential conditions for obtaining a loan, etc.

The solutions adopted by public authorities in the field of registering a business are important not only for national entrepreneurs. The rules for establishing a business are one of the elements assessed by business rankings (e.g. the doing business ranking, http://www.doingbusiness.org/data/exploreeconomies/poland/). The place in the ranking depends on the adopted solutions in a given Member State, which has an impact on the willingness of entrepreneurs from abroad to start up a business in that country. It should therefore be concluded that an easy registra-tion of business can influence not only the development of entrepreneur-ship in the country concerned but also contribute to foreign investment.

The aim of the authors is to analyse the adopted solutions in selected Member States of the European Union concerning the registration of business activity. The selection of Member States was made on the basis of the criterion of high economic development, as well as solutions that are conducive to establishing a business. Such an analysis of the respec-tive solutions for business registration will allow determining a model solution, which could be implemented in all EU countries.

The Functions and Importance of Business RegistrationAs mentioned above, an entrepreneur wanting to undertake economic activity should be registered in the public register kept by the public authorities. The registration itself does not only serve the entrepreneurs by allowing them to start business activity from the moment of obtain-ing the entry in the public registry. Registration also serves public au-thorities and other entrepreneurs. The role of business registers is the collection, processing and publishing of information about entrepre-neurs, which guarantees security of trade (Kaczmarek, 2005).

Thanks to this registration public authorities have a list of entities that carry out economic activities. This way they can oversee which entities that take up market activities are not registered and thus oper-ate in the ‘grey area’. Public authorities can counteract these entities,

Legal Aspects of Starting Up a Business in Selected EU Countries 85


which do not pay taxes and other duties and at the same time create ‘harmful’ competition for registered entrepreneurs.

In addition, business registers provide security. Thanks to them entrepreneurs can see if their client is actually an entrepreneur. Likewise, in the event of a dispute, for example regarding the implementation of an agreement concluded between entrepreneurs, they can get access to data from the public register allowing them to determine the jurisdiction of the Court to which the application must be sent. Business registration in a public register of entrepreneurs is in fact a formality, denoting that the registering entity shall perform an economic activity (Supreme Court Judgment of 23 March 2006, 220/05, OSNAPiUS 2077, no. 5-6, item 83, p. 242). Business registration embodies the principle of economic freedom. Business registration also allows to control whether a given entity has previously obtained consent to do business.

Moreover, the public register of entities engaged in economic activi-ties is also important for consumers, because it gives them security of trade. They can check whether in fact they are dealing with an entre-preneur who is listed in a public register and obtain the necessary data for an investigation, for example consumer claims.

However, it has to be kept in mind that easy and quick registration of an entity that intends to perform economic activities undoubtedly affects business development. It can therefore be concluded that the easier this procedure is, the more entities will be interested in starting up a business. Of course, it will often be single entrepreneurs or family businesses that do not have such legal service as major entrepreneurs. To sum up, the principles of business registration can be one of the first legal barriers that potential entrepreneurs may face.

The simplicity of business registration procedures alone, however, is insufficient for the successful development of entrepreneurship. Support for enterprises should consist in providing aid, mostly advisory services for newly created businesses. Conducting economic activity is regulated by many provisions, which are often too complicated for small entrepre-neurs. They often lack information for entrepreneurs on how they should perform the duties related to running a business, such as information about the payment of taxes or social security contributions.

In addition, the government should actively promote and stimulate entrepreneurship. A solution worthy of notice here is one that has been adopted in one of the German Länder. A small entrepreneur starting a business can count on help from the Government in the form of rental



of office space at preferential rates and for the first months accounting services are free of charge. Further support is offered by the Administra-tion in the USA, where an entire structure was created responsible for supporting small entrepreneurs (Small Business Administration). A small business owner may receive State aid in the form of preferential credit, credit guarantees, legal counselling, advice. It should be noted that small enterprises are the pillar of the US economy. Moreover, they contribute to the creation of many new jobs – in the years 1990-1995 three-quarters of new jobs in the US were created by small businesses (http://economics.about.com/).

Establishing a Business in FranceThe French economy is considered to be the sixth largest world economy that is part of the European Union, after the German economy. What makes the French economy competitive is a powerful industry, agricul-ture and resources of trained workers (Global Investment Center 2011).

Business registration in France takes place in ‘one window’ run by the public administration. The Centre de Formalités des Entreprises (CFE) centres for business formalities are responsible for the registration of new businesses and they operate in specific areas. It should also be noted that there are several types of such centres depending on the type of economic activity that the entity plans to undertake.

French regulations stipulate four categories of entities that must be registered in the appropriate register. The first category is formed by the artisan – craftsmen, i.e. service providers often performing their activi-ties within the framework of their family business. Such entities can perform economic activity after registration in the Répertoire des métiers and may not employ more than 10 people. The second category is Indus-triel – similar to the artisan category, but with the proviso that they employ more than 10 people. These entrepreneurs are subject to registra-tion in the Registre de commerce et des sociétés. The third category is Commerçant – this category consists of entrepreneurs who are pursuing a commercial activity for the purchase and resale of goods or brokering. Entities that intend to run a business in this field must register their business in the Registre de commerce et des sociétés. The last category is profession libérale – self-employed professionals, which include lawyers, doctors, architects or accountants (http://www.anglais.urssaf.fr/). A per-



son that intends to take up an economic activity, within the framework of one of the aforementioned categories, should submit an application to the Chamber of Commerce/Crafts for the appropriate category of the Centre de Formalités des Entreprises (CFE). Only the profession libérale does not have its own register and this registration is done through one of the five Office Régional d’Information, de Formation et de Formalités des Professions Libérales du Languedoc-Roussillon.

In 2009 France adopted solutions that are aimed at simplifying matters for small businesses, i.e. those who run businesses established within the framework of so-called self-employment and small entrepreneurs. These solutions mainly intended to reduce the public burden for such entrepre-neurs and reduce the formalities associated with running a business. They include the payment of a single tax, based on the monthly turnover of the entrepreneur, instead of social security contributions and taxes. For example, entrepreneurs involved in solicitation are obliged to pay 23.3% of their annual turnover. French law provided sanctions in case such an enterprise failed to submit the relevant declarations. This can result in the loss of the status of small entrepreneur and lead to the imposition of administrative penalties. It should also be added that these solutions are addressed to potential entrepreneurs who intend to take up an economic activity, and not to those who already carry out economic activities. In addition, annual turnover limits were introduced. These thresholds were established at EUR 82,200 for entrepreneurs involved in trade and busi-ness activities and EUR 32,900 for services (Davis, 2014 ).

The process of registering a business in France starts with the submis-sion of the registration form, which may be done either in person, through the mail, or via the Internet. The Centre de Formalités des En-treprises (CFE), as noted above, accepts applications for the registration of economic activities and also deals with matters regarding social benefits, tax issues and communicates relevant information to the sta-tistical offices. It is worth noting that running a business in France is possible only after registration of the economic activity. After registration the entrepreneur receives an identification number (allowing to identify the specific enterprise, its organisational and legal form and its geo-graphical scope) and a number identifying the main area of business.

It should also be noted that the legal solutions adopted in France make it easier for entrepreneurs to hire workers. All the formalities as-sociated with hiring employees can be arranged through the Centre de Formalités des Entreprises (CFE). The entrepreneur has to declare the



employment of a new employee by filling in the relevant form (Déclara-tion unique d’embauche).

In addition, the solutions adopted in France contribute to ensuring economic security. The Centre de Formalités des Entreprises (CFE) also forwards the information concerning business registration to the com-mercial court (Greffe) in order to determine whether the entity that has taken up the economic activity is not subject to a Court ruling prohibit-ing him to perform such activities.

When an entrepreneur wants to close his business he has to inform the appropriate Centre de Formalités des Entreprises (CFE) indicating the end date of the economic activity. This declaration is forwarded to all other offices dealing with taxes or social security (http://www.french-property.com/guides/france/working-in-france/starting-a-business/registration/).

French regulations exempt small, individual entrepreneurs from the obligation to register their business. Such entrepreneurs are only obliged to declare that they perform a given economic activity in the Centre de Formalités des Entreprises (CFE). This solution applies only to a part of the entrepreneurs, namely those whose annual turnover does not exceed EUR 80,000 for the sale of goods or EUR 32,000 for the provision of services (Trade and Investment Promotion Departments of the Embas-sies and Consulates of the Republic of Poland, Guide and Business Reg-istration in the French Republic, www.trade.gov.pl, p. 11).

In addition to economic activities carried out by natural persons, such activities can be performed in the form of companies – civil or commercial companies. The société à responsabilité limitée (limited li-ability company) and the société anonyme (public limited company) are the most prevalent (Campbell, 2009) forms of conducting business in France.

Before registering, an entity is required to select a location for the company headquarters and draw up the statutes of the company and establish the rules of procedure. In addition, at the time of application for registration of a company, the entity is required to submit: informa-tion about the board and the President of the company, the lease agree-ment or instrument of ownership of the premises where the headquarters of the company will be located, a proof of payment of the initial capital to a bank account, a proof of payment of the court fee for registration, a certificate of payment for the publication of information about the establishment of the company in the Bulletin Officiel des Annonces Com-



merciales and a statement of no criminal record (http://www.een.tarr.org.pl/rynki/zakladanie_firmy-francja.php). The entity is required to submit the application for registration of the company to the Centre de Formalités des Entreprises (CFE), which will forward the application to the commercial register kept by the competent court. Of course, the relevant information is also forwarded to the tax office, the anti-fraud office, social security and the statistical office. After registration of a company a K-bis document is issued, which is a confirmation of regis-tration.

The cost of registration of a company is around EUR 760, and the registration procedure takes about five days (http://www.doingbusiness.org/data/exploreeconomies/france/), during which the applicant has to fill in about 20 different types of forms (Trade and Investment Promo-tion Departments of the Embassies and Consulates of the Republic of Poland, Guide and Business Registration in the French Republic, www.trade.gov.pl, p. 11).

Establishing a Business in GermanyPerforming an economic activity in Germany is free for everyone. The German Trade Regulation Act only requires to notify the competent local authorities of the intention to undertake a specific business (In-stitut für Mittelstandsforschung IFM, 2013). Thus, future entrepre-neurs have to register their business in the Gewerberegister maintained by the respective federal states. However, people exercising liberal professions, i.e. lawyers, architects or tax advisors do not have to reg-ister their business activity (Guide on the provision of services in Ger-many, Trade and Investment Promotion Department of the Consulate General of Poland in Cologne, www.kolonia.trade.gov.pl/pl/download/file/f,13509).

Registration of economic activities is carried out at the Register Office (Gewerbeamt) of the applicable federal state. The headquarters or the registered address of the enterprise depend on the jurisdiction of the Office. This Office not only accepts applications for the registra-tion of economic activities but also deals with matters relating to performing economic activity. Any changes or the termination of the economic activity have to be notified to the Office. This is in line with the widespread in Europe ‘one-stop-shop’ idea of registration offices,



where entrepreneurs can not only register their business but also take care of all the formalities associated with running a business. The Of-fice (Gewerbeamt) forwards the application to the tax office, and if the activities of a new entrepreneur are associated with a craft – also to the competent Chamber of Commerce. In some cases, the Office will be obligated to forward the information to other entities, such as in-dustry-specific insurance companies, if the exercise of a particular activity is subject to the obligation of having a particular insurance policy.

The tax office, in response to an application, will send a question-naire necessary for business registration for tax purposes. After receipt of the relevant data the tax office assigns an income tax number (Eink-ommensteuernummer) to the new entrepreneur, as well as a VAT iden-tification number (Umsatzsteuernummer). Entrepreneurs with a rela-tively low turnover or annual profit are not required to conduct a full accounting. Only after reaching a set threshold (EUR 500,000 per year turnover or EUR 50,000 per year income) it is required for an entre-preneur to conduct a full accounting. The cost to register a business in the Office (Gewerbeamt) varies between EUR 20 and EUR 50 (FAQ guide for Polish entrepreneurs, Trade and Investment Promotion De-partment of the Consulate General of Poland in Cologne, www.kolonia.trade.gov.pl).

It has to be pointed out that not all economic activities in Germany are subject to economic freedom. Some economic activities require prior approval from the state administration or the local government. This involves requirements regarding activities prior to registration in the Chamber of Crafts (Handwerkskammer) or the Chamber of Commerce and Industry. Registration in the appropriate Chamber of Commerce/Crafts requires the future entrepreneur to have the relevant education and experience for the exercise of a particular type of craft. Usually it is requested to provide evidence of qualifications or relevant vocational training. In addition, an applicant has to demonstrate a few years of practice in the managerial profession – e.g. master or manager (Bunk, 2007). Furthermore, entrepreneurs that are registered in the Chamber of Commerce/Crafts are required to pay membership fees, depending on their income tax. Only small entrepreneurs who are not subject to registration in the commercial register are exempt from payment of such contributions if their annual profit does not exceed EUR 5,200 (Guide on the provision of services in Germany, Trade and Investment Promotion



Department of the Consulate General of Poland in Cologne, www.ko-lonia.trade.gov.pl/pl/download/file/f,13509, p. 11).

Starting up a business in Germany in the form of a legal person is different compared to starting up a business as a natural person. First and foremost, the company is subject to the obligation of registration in the commercial register (Handelregister) maintained by the district courts competent for the seat of the company. Furthermore, registration must be conducted through a notary, who then forwards the registration application in electronic form to the commercial register.

Since 2007 there is a central register of enterprises in Germany (www.unternehmensregister.de). However, this register covers only a part of the entrepreneurs. The obligation of listing information in the register applies to capital companies, and some partnerships, as well as maritime law or European companies (Bunk, 2007). In the register it is possible to obtain data about registered entities and it is possible to view documents of registered entrepreneurs. Additionally, it is possible to get access to the financial reports submitted by entre-preneurs, documents regarding initiated bankruptcy proceedings and enforcement proceedings.

Establishing a Business in ItalyIn Italy there has been a major reform of the business registration pro-cedure, as a result of which from 1 April 2010 this registration takes place in accordance with the so-called Unica Comunicazione procedure. The registration procedure is carried out within the framework of the Italian commercial registry (Registro delle Imprese). What is interesting is that this register is available online and is run as a national base. Registration of business activity can be conducted at the offices for registration, which operate in each of the Chambers of Commerce. These offices are created by the Chambers of Commerce and managed by them, however, the public authorities are responsible for their correct function-ing. Supervision of the activities of such offices is carried out by a court judge and managerial decisions are made by the Superintendent elected by the Board of Directors of the Chamber of Commerce (www.registro-imprese.it).

The Unica Comunicazione procedure assumes registration of a busi-ness in a one-stop-shop model. What is interesting, a declaration of



economic activity can only be submitted in electronic form using the TELÊMACO information system or on electronic disk. For the purposes of business registration new entrepreneurs are required to have an elec-tronic signature, which is the only form of authorisation of the applica-tion. Under the Unica Comunicazione procedure the entrepreneur is obliged to fill in the registration form as well as forms regarding taxes and social benefits (https://www.registroimprese.it/).

The data of the future entrepreneur are sent by the information system to other offices and to the Chamber of Commerce, depending on the field of the planned economic activity. Italian regulations require that the Chamber of Commerce registers entrepreneurs within 5 days from the date of receipt of the application for registration, while the other offices have 7 days. In any case, after registration, the applicant shall be informed of this fact via the information system or by e-mail (Taking up or pursuing an economic activity in Italy. Handbook for en-trepreneurs, the Embassy of the Republic of Poland in Rome, electronic version, http://www.rzym.msz.gov.pl/pl/).

The Italian business registration system is entirely automated, which obviously has positive effects in terms of registration time. However, it should be noted that not every person who intends to take up an eco-nomic activity in Italy will have access to, for example, an electronic signature. It can therefore be concluded that although this system will undoubtedly improve the process of business registration, it also needs to provide support for future entrepreneurs. This support seems to be given by the Chamber of Commerce offices, which provide assistance to entrepreneurs in the process of business registration. In the offices of the Chamber of Commerce entrepreneurs can get an electronic signature as well as special software for business registration. In addition, the Chamber of Commerce offices provide advice to future entrepreneurs in the field of business registration.

In the Italian registry (Registro delle Imprese) companies are subject to registration as well. The most common form in Italy are limited liabil-ity companies (società a responsabilità limitata, s.r.l.) and joint stock companies (società per azioni, s.p.a.).

The cost of registration varies between EUR 17.5 and EUR 65, not including costs related to notarial acts in the case of companies (Taking up or pursuing an economic activity in Italy. Handbook for entrepreneurs, the Embassy of the Republic of Poland in Rome, electronic version, http://www.rzym.msz.gov.pl/pl/).



Establishing a Business in FinlandStarting up a business activity in Finland is associated with the necessity of its registration. An interesting solution is that all entrepreneurs are subject to registration in a single register – the main commercial register of Finland. This register is run by the National Board of Patents and Registration, and in every Regional Court there is a Local Register Office (https://helsinki.trade.gov.pl/pl/Przewodnik_dla_przedsiebiorcow/article/detail,282,Rejestracja_firm.html). Such a solution provides access to a nationwide register for all entities performing economic activities and, furthermore, it allows for registration in many places.

Registration is done by submitting a form that is also available in Swedish and English. The same rules apply for the registration of a busi-ness activity carried out in person and for commercial law companies. At the same time, future entrepreneurs can submit the relevant notifica-tion to the tax office (income tax, VAT register) and declare employment of workers.

The registration form can be submitted in person at the Local Reg-ister Offices in Regional Courts, at the Centres for Economic Develop-ment, Transport and the Environment, or at tax offices. The registration procedure may take between 2 (when the application is sent via the Internet) to 8 days (when the application is sent in paper form). Of course, during this time, the application is verified and either accepted or denied, or the applicant is requested to correct any made mistakes. In exceptional cases, upon written and legitimate request of the appli-cant, the application for registration can be considered urgent and thus the registration time will be reduced (https://www.prh.fi/en/kauppar-ekisteri/kasittelyajat.html).

An advantage of the Finnish system of registration of economic enti-ties is the mandatory verification whether a company using the same name is already registered. In case when another entrepreneur is already using the same or a similar sounding name the entrepreneur has to change the name under the sanction of refusal of registration. This is a good solution, because it avoids possible disputes in the future and also limits the possibility of acts of unfair competition involving the use of the reputation of other entrepreneurs to sell own goods or services.

Another condition for registering a business activity in Finland is the payment of administrative fees. Depending on the organisational and legal form of a future enterprise this fee varies between EUR 110 and



EUR 380. Only after the payment of the registration fee an application is processed. After the application is processed through the information system a Business ID – identification number of the entrepreneur – is issued. After registration the entrepreneur obtains (free of charge) an excerpt from the register, which is the official certificate of registration. As a rule, these statements are immediately sent per email to the entre-preneurs after the entry is made in the register.

In the process of business registration assistance can be provided by the National Board of Patents and Registration, where you can get prac-tical information on filling out the application (this is also ensured by a special hotline, contact form and register guides available on the website of the Board).

Establishing a Business in BelgiumThe legal term business in Belgium entails three categories of activity: trade, craft and industry. In most cases, the entities that want to carry out business activities in these areas are required to register in the com-mercial register. It has to be noted that the register does not include certain types of activities which are performed independently, i.e. free-lancers (https://brussels.trade.gov.pl/pl/PrzewodnikporynkuBelgia/article/detail,463,FORMY_PROWADZENIA_DZIALALNOSCI_GOS-PODARCZEJ.html).

As mentioned above, registration of economic activities is done by submitting an application to the commercial register (La Banque-Carrefour des Entreprises) through the so-called guichets d’entreprises (business of-fices), which are run on behalf of the Government by eight entrepreneurs (there are more than 200 in Belgium). Not only registration of business activity can be conducted in such offices, but they also deal with other formalities associated with performing an economic activity (for example, registering a new branch). However, other very important activities of these offices include supporting new entrepreneurs by providing informa-tion on the formalities for the registration of economic activities, verifica-tion of whether the entity has complied with the legal obligations associ-ated with starting a business, the issuance of excerpts, and the collection of registration fees – EUR 82.50 (Federal Public Service Economy, 2011). Each entrepreneur is given an identification number, which is also used as a tax identification number and for the purposes of social benefits.



As mentioned above, besides business registration the guichets d’entreprises (business offices) also provide support for new businesses, in particular small and medium-sized businesses. This support includes free of charge consultancy services in the field of the legal, financial and accounting aspects of doing business. Entrepreneurs can get information about their public responsibilities and at the same time receive help in completing the documentation for the various public administration offices.

Other rules apply when it comes to the registration of legal persons. In their case the registration obligation arises within 15 days from the date of conclusion of e.g. the company agreement. A notary conducts the registration in the competent commercial court through the infor-mation system, by making an entry in the commercial register and posting the appropriate information in the official journal (Moniteur belge/Belgisch Staatsblad).

SummaryRegistration of business activity is undoubtedly the first step of future entrepreneurs to providing services or goods in the market. It can there-fore be concluded that business registration is often the future entrepre-neur’s first contact with the administration, with which he will have to work for the entire duration of his business activity. The easier it is to register a business, the more people are willing to take up economic activity. Complicated rules for the registration of a business may even deter potential entrepreneurs from starting a business or may lead to entrepreneurs performing business activities without registration.

The reviewed solutions found in different countries of the European Union indicate that there is no single model for business registration. It is also hard to conclude that countries such as Germany, France or Italy have set up standard models of business registration. Such solutions can be sought first and foremost in countries like Belgium. In Belgium, sup-port for entrepreneurs is provided not only in matters on how to fill in the registration form. This support consists in assistance with account-ing problems, with financial and legal entities when doing business. This is particularly important for small, family businesses, especially in the early stages of business development, when they usually do not have the financial resources for accounting services.



A very good solution is the exemption from the obligation to register for small entrepreneurs in France, which entails a simplified form of payment of public dues. Moreover, a very important part of the French business registration system is the verification whether an entity is sub-ject to judicial prohibition. Undoubtedly, this contributes to the safety of trade, which is also provided by public access to business records. Another good solution had been adopted in Italy. Through the submis-sion of applications in electronic form only and the requirement of an electronic signature the registration process is made quicker.

It should be noted that support from the public administration is very important for entrepreneurs. In many countries such support is provided in the offices where business registration takes place. Additionally, some of the countries provide free of charge support for entrepreneurs in run-ning their business. It could be concluded that this last type of support is very useful especially for small entrepreneurs that do not have the resources for legal advice, for example.

Questions1. What is the purpose of business activity registration?2. How can the public administration support entrepreneurs in the

process of business registration and thereafter?3. Which of the above-mentioned countries adopted favourable solu-

tions for the registration of small businesses? What are they? Explain why.

4. Is the system of business registration necessary? Explain why.

Recommended Readings1. Harrison J. and Theeuwes J. (2008). Law and Economics. W.W. Nor-

ton & Company. 2. Beatty J. and Samuelson S. (2015). Business Law and the Legal En-

vironment. Cengage Learning.3. Lowenfeld A. (2008). International Economic Law. Oxford: Oxford

University Press.



BibliographyBunk A. (2007). Polish Entrepreneur on the German market. Selected

legal aspects of economic activity in Germany. Electronic version.Campbell C. (2009). Legal Aspects of Doing Business in Europe II. Yor-

khill Law Publishing.Davis S. (2014). The auto-entrepreneur system for a small business in

France. Property & Living.FAQ Guide for Polish entrepreneurs, Trade and Investment Promotion

Department of the Consulate General of Poland in Cologne, www.kolonia.trade.gov.pl

Global Investment Center (2011). Business in France for Everyone: Prac-tical Information and Contacts for Success. USA.

Guide on the provision of services in Germany, Trade and Investment Promotion Department of the Consulate General of Poland in Co-logne, www.kolonia.trade.gov.pl

The Federal Public Service Economy, SMEs, Self-employed and Energy (2011). How to set up your own business in Belgium, economie.fgov.be

Institut für Mittelstandsforschung (2013). Jahrbuch zur Mittelstandsfor-schung 1/2002. Springer-Verlag.

Kaczmarek P. (2005). The new rules of business records. Ruch Prawniczy, Ekonomiczny i Socjologiczny, 4.

Polish Supreme Court Judgment of 23 March 2006, 220/05, OSNAPiUS 2077, no. 5–6, item 83.

Strzyczkowski K. (2011). Public law. Warsaw: LexisNexis.Trade and Investment Promotion Departments of Embassies and Con-

sulates of the Republic of Poland, Guide and Business Registration in the French Republic, www.trade.gov.pl

Taking up or pursuing an economic activity in Italy. Handbook for entre-preneurs, the Embassy of the Republic of Poland in Rome, electronic version, http://www.rzym.msz.gov.pl/pl/

https://brussels.trade.gov.pl/pl/PrzewodnikporynkuBelgia/article/detail,463,FORMY_PROWADZENIA_DZIALALNOSCI_GOSP-ODARCZEJ.html

http://www.french-property.com/guides/france/working-in-france/starting-a-business/registration/

https://helsinki.trade.gov.pl/pl/Przewodnik_dla_przedsiebiorcow/arti-cle/detail,282,Rejestracja_firm.html

http://economics.about.com/



http://www.doingbusiness.orghttp://www.anglais.urssaf.fr/https://www.prh.fi/en/kaupparekisteri/kasittelyajat.htmlhttp://www.een.tarr.org.pl/rynki/zakladanie_firmy-francja.phpwww.registroimprese.it


Chapter 5

Mariola Ciszewska-Mlinarič, Karolina Kochman, Krzysztof Szadkowski

Venturing into BRICS: The Dilemma of a Polish Medium-Sized Firm, Granna Sp. z o.o.

Introduction

After the political transformation of Poland, an increasing number of Polish companies have become actively engaged in operations in

foreign markets, increasing the economic integration of Poland with the global economy. Between 1990 and 2010 the share of Polish exports in global export activities grew from 0.39% to 1.029%, and at the same time the volume of Polish exports grew more than eleven-fold (Gorynia, 2012). In fact, exports constitute the predominant market entry mode of Polish firms (Trąpczyński, 2014). Today, even small and medium-sized entrepreneurial firms see international expansion as a viable growth option (Wach, 2012), and some of them are considering entering one or more of the BRICS markets, which are attractive destinations for their great growth potential and large populations. However, entering such a market is very often risky and might pose difficulties for doing business due to cultural, administrative, geographic and economic differences. Moreover, firms from Poland, like their peers from some other emerging markets, still cannot rely entirely on a system of effective and well-co-ordinated government support measures for foreign expansion (Gorynia et al., 2015).

100 Mariola Ciszewska-Mlinarič, Karolina Kochman, Krzysztof Szadkowski


The objective of this chapter is to examine the opportunities and challenges of doing business in India from the perspective of a medium-sized Polish firm, i.e. a publisher of board games. We ask the following question: Should Granna enter India? And if yes, which entry mode would be the most suitable for the company?

The chapter proceeds as follows. In the first section, we present an overview of BRICS as destination markets. Next, we address the phe-nomenon of the internationalisation of small and medium-sized enter-prises (SMEs), indicating the key theoretical frameworks, as well as the issues of entry mode and market selection. Finally, we present a case study of Granna, providing a basis for a discussion on the company venturing options into the Indian market.

BRICS as Destination MarketsBRICS, initially Brazil, Russia, India and China, and since 2010 South Africa, have become one of the driving forces of global economic devel-opment and are of great importance for generations to come. The focal point of worldwide economic activity is shifting from industrialised countries in the West to the emerging economies of Latin America, Africa and Asia. In recent decades we are observing both dynamic growth and an accelerated integration of the BRICS economies with the global economy (see Table 1).

Table 1. Key facts about BRICS – economy, international trade & FDI (in millions USD, at current prices)

GDP 1990 1995 2000 2005 2010 2013

World 22 603 849 30 454 517 32 857 937 46 505 789 64 400 685 74 600 701

BRICS (total) 1 245 441 2 444 984 2 697 677 5 017 848 11 685 773 15 990 345

Brazil 402 137 768 951 644 729 882 044 2 143 035 2 250 370

Russia - 398 719 259 446 764 016 1 524 917 2 144 146

India 326 796 369 240 467 788 837 499 1 704 795 1 924 452

China 404 494 756 960 1 192 836 2 287 238 5 949 786 9 318 901

South Africa 112 014 151 113 132 878 247 052 363 241 352 475

BRICS (%) 5.51 8.03 8.21 10.79 18.15 21.43

Venturing into BRICS: The Dilemma of a Polish Medium-Sized Firm, Granna Sp. z o.o. 101


EXPORTS 1990 1995 2000 2005 2010 2013

World 4 260 531 6 338 858 7 940 643 12 925 674 18 968 720 23 316 288

BRICS (total) 142 615 365 496 555 864 1 462 276 2 875 364 3 879 471

Brazil 35 170 52 641 64 584 134 356 233 599 281 133

Russia - 93 200 114 792 268 768 447 551 596 812

India 22 911 38 013 59 932 154 703 348 035 464 188

China 57 374 147 240 279 561 836 888 1 742 165 2 428 245

South Africa 27 160 34 402 36 995 67 561 104 014 109 092

BRICS (%) 3.35 5.77 7.00 11.31 15.16 16.64

IMPORTS 1990 1995 2000 2005 2010 2013

World 4 259 448 6 253 178 7 948 904 12 783 421 18 499 022 22 606 159

BRICS (total) 125 434 363 753 490 990 1 225 078 2 632 049 3 673 529

Brazil 28 184 63 293 72 443 97 962 244 434 326 349

Russia - 83 577 61 709 164 179 323 700 473 261

India 29 527 48 225 73 075 181 979 439 059 559 767

China 46 706 135 283 250 688 712 261 1 523 321 2 194 734

South Africa 21 017 33 375 33 075 68 698 101 535 119 417

BRICS (%) 2.94 5.82 6.18 9.58 14.23 16.25

INWARD FDI FLOWS 1990 1995 2000 2005 2010 2013

World 208 168 343 280 1 414 999 996 714 1 422 255 1 451 965

BRICS (total) 4 634 47 384 80 684 117 249 237 475 303 606

Brazil 989 4 405 32 779 15 066 48 506 64 045

Russia - 2 066 2 714 15 508 43 168 79 262

India 237 2 151 3 588 7 622 27 431 28 199

China 3 487 37 521 40 715 72 406 114 734 123 911

South Africa -78 1 241 887 6 647 3 636 8 188

BRICS (%) 2.23 13.80 5.70 11.76 16.70 20.91

OUTWARD FDI FLOWS 1990 1995 2000 2005 2010 2013

World 241 614 361 942 1 241 223 904 270 1 467 580 1 410 810

BRICS (total) 1 488 6 318 7 159 36 573 148 872 199 710

Brazil 625 1 096 2 282 2 517 11 588 -3 496

Russia - 606 3 177 17 880 52 616 94 907

India 6 119 514 2 985 15 933 1 679

China 830 2 000 916 12 261 68 811 101 000

South Africa 27 2 498 271 930 -76 5 620

BRICS (%) 0.62 1.75 0.58 4.04 10.14 14.16

Source: own calculations based on UNCTAD data. Retrieved on 18 May 2015 from http://unctadstat.unctad.org/EN/



BRICS: international trade and foreign direct investmentTrade policies and institutions of the BRICS countries have significantly developed over the years. Tariff rates have been lowered and a large number of import restrictions has been phased out in order to promote trade-openness and attract FDI.

The BRICS markets’ growing importance for the global economy is reflected by a variety of economic indicators, such as their share in the world trade and their foreign direct investment (FDI) inflows and out-flows. The BRICS share in the world trade has improved significantly over the past decade, with China as the main contributor for both exports and imports. International trade appears to have played a crucial role in accelerating the economic growth of these nations. At a total of USD 3.9 trillion in 2013, exports are important drivers of the BRICS econo-mies. From 9% in 2003, in 2013 BRICS exports of goods and services accounted for 17% of global exports (UNCTAD, 2015).

The BRICS countries, whose FDI inflows have more than tripled over the past decade, today emerge as major recipients of FDI with USD 303 billion in 2013, resulting in a share of 21% of global FDI inflows. In 2013, almost 41% of FDI inflows to BRICS go to China, followed by the Rus-sian Federation (26.1%), Brazil (21.1%), India (9.3%) and South Africa (2.7%) (UNCTAD, 2015). Apart from being a major FDI recipient, the BRICS nations themselves emerged as important outward investors, with a rise of outward FDI from USD 15 billion in 2003 to almost USD 200 billion in 2013 and a 14.16% share of global FDI outflow.

Attractiveness of the BRICS markets Over the past few years, entrepreneurs operating in high-income markets have been focusing increasingly on the challenges of high competition and stagnating growth. Meanwhile, emerging economies, especially the BRICS markets, are characterised by an exponential growth rate in the middle class and an increase in purchasing power parity and disposable income (Euromonitor, 2014). A great geographic area (25% of the world’s area), along with a combined population as high as 2.8 billion (40% of the world’s population), make these countries extremely attractive to companies all over the globe. In addition, the availability of a low-cost and often well-educated labour force presents great opportunities for FDI or offshoring.



Emerging markets, such as BRICS, offer a variety of investment op-portunities. They altogether represent about a third of the world’s stock market capitalisation and have a significantly higher average groth rate when compared to developed countries (Ernst & Young, 2012). In fact, BRICS growth has become an important driving force for other emerg-ing market economies and the growing domestic demand, characterised by higher incomes and the emergence of a young working population, will play a crucial role for the emerging markets’ further growth (IMF, 2014). With their strong economic growth, favourable demographics, rich natural resources and strong finances, the BRICS nations have a great potential to attract further investors.

Challenges of doing business in BRICSDespite the BRICS attractiveness, there are a number of challenges related to operating in these markets. In spite of their growth in GDP, interna-tional trade and FDI, global reports show that they have not been able to follow up in rankings related to the ease of doing business, competitiveness, economic freedom, innovation, society and corruption (Table 2).

Table 2. BRICS in global rankings

Area Report Year Brazil(Rank)

Russia(Rank)

India(Rank)

China(Rank)

South Africa (Rank)

Countries reviewed

Ease of Doing Business

Doing Business (World Bank)

2014 123 64 140 93 37 1892006 119 79 116 91 28 155

Competitive-ness

Global Competitiveness Index (World Economic Forum)

2014 57 53 71 28 56 144

2004 64 51 80 40 35 134

Economic Freedom

Ranking of Economic Freedom (The Heritage Foundation)

2014 118 143 128 139 72 185

2004 88 150 155 153 69 183

Innovation Global Innovation Index (INSEAD / WIPO)

2014 61 49 76 29 53 1412008 50 68 49 29 50 130

Society Human Development Report (UNDP)

2013 79 57 135 91 118 187

2003 65 63 127 104 111 175Corruption Corruption Perceptions

Index (Transparency International)

2014 69 136 85 100 67 174

2004 59 90 89 71 44 145

Source: own elaboration.



The Ease of Doing Business index indicates the business-friendliness of a country in terms of business regulations and the protection of prop-erty rights. Overall, most BRICS countries show a decline in 2014 when compared to 2006. South Africa leads the BRICS with a rank of 37, while Brazil and India score below the world averages. As for global competi-tiveness, most BRICS markets show an increase in Competitiveness in 2014 when compared to 2004. China emerges as the most competitive of the BRICS, followed by Russia, South Africa and Brazil, which show a similar level of competitiveness. Most BRICS countries are character-ised by low Economic Freedom, thus ranking average or below when compared to other economies. While Russia and Brazil have an above average Human Development Index, China, South Africa and India still show large deficits in terms of life expectancy, education and per capita income.

At the beginning of the XXI century, a management professor and business philosopher, C.K. Prahalad, developed a business idea that he called The Fortune at the Bottom of the Pyramid (BOP) (Prahalad and Hart, 2002; Prahalad, 2009), in which he implies that multinational companies are overlooking an enormous market at the bottom of the socio-economic pyramid – approximately 4 billion potential customers from emerging economies, living on less than USD 2.50 a day to cover all their needs. Although such amounts seem low and unlucrative at first, when multiplied by the size of the countries’ population, a poten-tial market worth USD 5 trillion becomes apparent (WRI, 2007). Furthermore, mass-producing and selling products to individuals in BOP markets would immediately secure a major market share and lead to profits resulting from the mere sales volume, while at the same time eradicating poverty. The main idea is to help improve the lives of the poor by selling to them and by producing and distributing products in ways that are sustainable, culturally sensitive and economically profit-able at the same time. The major challenge, however, lies in the question, how to combine good quality, low cost, sustainability and profitability (Prahalad, 2009).

Internationalisation of SMEs The internationalisation strategy is increasingly popular among SMEs, which see their growth potential not only in the domestic market, but



also seek to tap new opportunities in foreign markets (Daszkiewicz and Wach, 2013; Wach, 2012). According to the results of an EU-commissioned study on the internationalisation of European SMEs, among a sample of 9,480 firms, almost 30% of SMEs were involved in international activities (European Commission, 2010).

The literature is abundant with different motives explaining why firms decide to expand to foreign markets, however, in a recent over-view Cuervo-Cazurra et al. argue that internationalisation motives can be classified into four categories (Cuervo-Cazurra et al., 2015, p. 25): sell more (exploiting existing resources at home and obtaining better host country conditions); buy better (exploiting existing re-sources abroad and avoiding poor home country conditions); upgrade (exploring new resources and obtaining better host country condi-tions); and escape (exploring new resources and avoiding poor home country conditions). The classification builds on behavioural econom-ics, presenting internationalisation motives ‘as the result of the inter-action among two dimensions, an economics-driven exploitation of existing resources or exploration of new resources, and a psychology-driven search for better host country conditions or avoidance of poor home country conditions’ (Cuervo-Cazurra et al. 2015, p. 25). It is widely accepted, however, that SMEs opting for international expan-sion have to face significantly higher entry barriers compared to large multinational corporations (Hutchinson et al., 2009). Significant challenges result from liability of foreignness (Zaheer, 1995; Johanson and Vahlne, 2009), liability of smallness (Kale and Arditi, 1998; Al-drich and Auster, 1986), liability of outsidership (Johanson and Vahlne 2009), and often liability of newness (Aldrich and Auster, 1986; Kale and Arditi, 1998). Given that SMEs often lack resources and capa-bilities, venturing into foreign markets and capturing existing inter-national opportunities is therefore a more demanding and risky step for them than for large firms.

Although internationalisation poses different challenges for large and small companies, there are certain decisions that managers have to make, regardless of the company size. That includes market and entry mode selection, as well as the pace of internationalisation. In the following sections, we briefly discuss the key theoretical frame-works that shed light on company internationalisation choices and actions.



Internationalisation theories Within the international business field several important theories have been developed (for an overview see Wach, 2012), but three of them are particularly relevant to predict and explain the international behaviour of SMEs. First, the Uppsala model (Johanson and Vahlne, 1977), which depicts the process of internationalisation as the gradual and evolution-ary commitment of resources to foreign markets, driven by the acquisi-tion of experiential knowledge. The model postulates that firms start with exporting, and along with the increase of foreign market (experi-ential) knowledge, they may decide to increase their commitment by establishing sales and/or manufacturing subsidiaries abroad. The Up-psala Model explains the selection of foreign markets in terms of psychic distance, which is defined as a combination of factors disturbing the flow of information between a company and its target market, such as “differences in language, education, business practices, culture and industrial development” (Johanson and Vahlne, 1977, p. 24). In other words, at the beginning of international expansion firms tend to select markets that are culturally as well as institutionally similar to their domestic environment, which lowers their uncertainty. Only after gain-ing knowledge and experience, firms may consider entry into more distant markets.

Second, the network approach, which highlights the significance of linkages and relationships in the internationalisation process of firms, enabling them to gain access to resources and foreign markets (Johanson and Mattsson, 1988; Chetty and Blankenburg-Holm, 2000). Thus, the network scholars see internationalisation as a process of creating and maintaining relationships with partners in foreign markets, and this process may go three different ways: by forming relationships with part-ners in new countries (international extension); by increasing commit-ment in already established foreign networks (penetration); by integrat-ing their positions in networks in various countries (international integration) (Chetty and Blankenburg-Holm, 2000, p. 80; Johanson and Mattsson 1988). The firm’s international performance, the develop-ment of its presence in the market, is explained in terms of the firm’s position within the network. While examining the internationalisa-tion of manufacturing SMEs, Chetty and Blankenburg-Holm (2000) argue that operating within a network can bring numerous benefits for firms, including new opportunities, knowledge, experiences, and the



synergistic effect of pooled resources. According to Falize and Coeur-deroy (2012, p. 6), relations have a particularly significant influence in case of markets that are culturally distant from the home country. The crucial effect of the network approach is that it accelerates the process of learning on both sides. The significance of networks for the interna-tionalisation process and learning has also been recognised by the au-thors of the Uppsala model. In the revised version of their model, Jo-hanson and Vahlne (2009, p. 1424) admit that: ‘the internationalisation process is pursued within a network. Relationships are characterised by specific levels of knowledge, trust, and commitment that may be un-evenly distributed among the parties involved, and hence they may differ in how they promote successful internationalisation’.

Third, the born-global theory, which indicates that firms do not necessarily follow the postulates of the Uppsala Model, but instead they may engage in international operations soon after or even from the first day of their inception (Knight and Cavusgil, 1996; Oviatt and McDou-gall, 1994), and thus they are called ‘born globals’. Sharma and Bloms-termo (2003) link the born-global and the network theory, providing evidence that the selection of both foreign markets and entry modes made by born-global firms is based on ‘their existing knowledge and the knowledge supplied by their network ties’ (p. 739). Therefore, they do not necessarily choose culturally similar countries as their destination markets, or start internationalisation through exporting. The actual decisions concerning both foreign markets and entry modes are adapted ‘to the needs of the individual markets and clients’ (Sharma and Blom-stermo, 2003, p. 748), and determined by the stock of international market knowledge (before the first foreign market entry) and network ties (among which weak ties are particularly important) (Sharma and Blomstermo, 2003).

Entry modes: advantages, disadvantages and SME preferencesThere are different modes that firms may use to enter foreign markets (Wąsowska, 2014). Traditionally, they are classified into two groups. First, non-equity modes, which include both exporting (direct, indirect) and contractual agreements (e.g. licensing, franchising, turnkey projects, R&D contracts, co-marketing). Second, equity modes, which include



joint ventures and wholly owned subsidiaries (the latter can be estab-lished either as a result of a greenfield investment or an acquisition). Compared to equity modes, non-equity modes require a lower commit-ment of resources, they offer a higher flexibility and in general are perceived as low risk strategies, and therefore are more common among SMEs. In contrast, equity modes are much more resource intensive (and hard-to-reverse commitments make them more risky), but they allow managers to exert full control over foreign operations. The advantages and disadvantages of the most popular entry modes are summarised in Table 3.

Table 3. Entry modes

Choice of entry modes Advantages Disadvantages

Non-equity modes

Exports

O Economies of scale in production concentrated in home country

O Low risk

O High transportation costs for bulky products

O Marketing distance from customersO Trade barriers and protectionism

Licensing / franchising

O Low development costsO Low risk in overseas expansion

O Little control over technology and marketing

O May create competitorsO nability to engage in global

coordination

Equity (FDI) modes

Joint-ventures

O Sharing costs, risks, and profitsO Access to partner’s knowledge and

assetsO Politically acceptable

O Divergent goals and interests of partners

O Limited equity and operational control

O Difficult to coordinate globally

Greenfield

O Complete equity and operational control

O Protection of know-howO Ability to coordinate globally

O Potential political problems and riskO High development costsO Slow entry speed (relative to

acquisitions)

Acquisition

O Same as greenfieldO Fast entry speed

O Potential political problems and riskO High development costsO Post-acquisition integration

problems

Note: other types of contractual agreements include: turnkey projects, R&D contracts, co-marketing

Source: adapted from Peng (2013).



SMEs as well MNCs may enter new markets by choosing different modes, however, most often they opt for exporting. According to the results of an EU-commissioned study on the internationalisation of European SMEs, based on a sample of 9,480 firms, 25% of SMEs (within the EU27) have exports, 7% of SMEs are involved in technological co-operation with a foreign partner, but only 2% of SMEs are active in foreign direct investment (European Commission, 2010).

Market selection: does distance matter? The original version of the Uppsala model suggests that firms choose markets that are culturally and institutionally similar to the domestic one. Nowadays, however, the significance of distance as a barrier in the internationalisation process is often questioned. Some scholars have even announced ‘the death of distance’, pointing to the advances in transportation and communication technologies, or the increasing in-tegration of the global economy (Hamill, 1997; Cairncross, 1997; Fried-man, 2006). Nonetheless, empirical studies do not always confirm this claim (for an overview see Ciszewska-Mlinarič and Wąsowska, 2012). For instance, Frankel and Rose (2002) proved that the fact of having a common borderline increases trade between countries by 80%, com-mon language by 200%, common currency by 340%, and past colonial relations by 900%. Rugman (2005) argues that the distance between regions is increasing. In fact, the activities of most multinationals tend to be focused on their region of origin (Rugman and Li, 2007). The as-sumption that distance matters is also supported in the context of in-ternationalised European SMEs and their decisions concerning market selection: ‘partner countries are mostly other EU countries (…) Three-quarters of all exporting SMEs are oriented towards markets in other EU Member States. Emerging markets such as Brazil, Russia, India and China (BRIC) are only served by 7–10% of exporting SMEs (European Commission, 2010, p. 6).

Ghemawat (2001) argues that while searching for growth, managers may often ignore the costs and risks of doing business that result from the differences between the domestic and foreign markets. Consequently, this can lead to a low performance in the foreign markets. Thus, Ghe-mawat encourages managers to perform a structured analysis of the four dimensions of distance – cultural, administrative, geographic and eco-



nomic (CAGE), in order to deeply understand the opportunities and risks present in foreign markets (Table 4).

Table 4. The CAGE model

Distance dimension Factors

(C)ultural Distance – Different languages, religions, and social norms, attitude to ethics– Different ethnicities

(A)dministrative Distance – Absence of colonial ties; absence of shared monetary or political association– Political hostility– Government policies– Different currency, attitude to law

(G)eographic Distance – Physical remoteness– Different climate, time zones– Lack of common border– Lack of sea or river access– Weak transportation or communication links; size of country

(E)conomic Distance – Differences in income level– Differences in costs and quality of: resources (natural, financial, human),

infrastructure, information or knowledge

Source: adapted from Ghemawat (2001, p. 139).

Polish Board Game Producer Enters the BRICS Market

Granna – company profile

Granna Sp. z o.o. (‘Granna’) is a family-owned business that publishes educational board games for children and adolescents. The company was created in the early 1990s by Ewa and Konrad Falkowski. During that time, Poland was going through the transition towards a free-market economy, which allowed entrepreneurs to rapidly grow their businesses. Even though in those days Mr. Falkowski was building wind tunnels and Mrs. Falkowska was a child psychologist, they decided to start something on their own. The idea of the company arose from their passion to make children happy, therefore the choice of the toys and games industry was simple. Apart from board games (including educational, family and party games) the company also offers puzzles and quizzes, while always maintaining the educational



value of the products. Among its most popular games is SuperFarmer, which has been exported to 25 different countries and has sold over 1,000,000 copies worldwide (PAP, 2015). Currently, Granna hires about 110 employees and is one of the 9 remaining companies in the board games industry in the Polish market. In 2013 Granna generated a revenue of PLN 19 million, which represents 12.5% of the market share.

In the 1990s, at the early development stage of Granna, the com-pany operated in the domestic market only. In 2002, however, eleven years after its inception, the entrepreneurs decided to explore inter-national opportunities. Granna did not want to limit itself to one market only, and the key reason for going abroad was the possibility of making additional sales and profits.

In 2015, apart from Poland, which remains Granna’s main market, the company also sells its products in a number of foreign markets, including Germany, Russia, France, Austria, Turkey, Ukraine, Czech Republic, Slovakia, Hungary, Lithuania, Latvia and even Australia, and plans to expand to new markets every year. As can be observed, the company decided to enter markets that are geographically close. Although in 2013 the domestic market accounted for almost 90% of total revenues, the share of foreign revenues is growing each year.

Granna decided to expand to the Czech market in 2002 by export-ing. Although the market’s proximity was the most important factor, the majority of the later expansions were driven by relationships with foreign business partners. Unlike in the case of exporting, Granna tried using licensing in more distant countries – like the USA. How-ever, this partnership did not last long (as the profit goals were not met). As of 2015, the company has achieved the best sales results in countries that are the direct neighbours of Poland.

Today, Granna’s founders are again planning to expand to a new market and have considered another of the BRICS markets. So far, the company has a successful distribution agreement with a Russian partner, but Konrad Falkowski is still looking for new opportunities to expand. During the recent trade fairs in Germany, the owner has established a relationship with an Indian producer of board games, and has been considering the Indian market as an interesting destina-tion for Granna’s products. Together with a team of consultants, he is now examining the peculiarities of the Indian market in order to gain insight into the opportunities it offers.



Opportunities of the Indian market Although all of the BRICS countries have high growth potential, the choice of the Indian market was dictated by its great size and the long tradition of board games in India (Pratap, 2014). There is a high demand for education and it is expected that planned reforms over the next 10 years in India will present various new possibilities for education insti-tutions and especially for education businesses (Heslop, 2014). Granna, being a producer of board games of great educational value and quality, could grasp this opportunity and hopes to eventually become one of the major players in the Indian toys and games market.

India as a target market. Having a population of more than 1.2 billion people, India is one of the largest and fastest growing economies in the world. With half of its population being under the age of 25, there is great potential for the toy and game industry. India’s urban population (app. 32% of the total population) is already larger than the population size of the entire United States and is expected to double by 2050. The trend for urbanisation and the growth of the middle class go hand in hand with a rise in income and spending (Varma, 2013). Consequently, although price is still the main consumer decision influencer, awareness for quality is rapidly catching up. The growing demand for value-for-money products (Kapur, 2014) presents a great opportunity for the Indian toy and game industry.

India is a promising consumer market with decent education levels and an upwardly mobile English-speaking urban population with higher purchasing power. Parents seek to support the education of their children from a very early age by managing their leisure time and hiring private tutors (Euromonitor, 2007).

Sales of traditional toys and games in India grew about 15% from INR 24.59 billion (EUR 320 billion) in 2012 to INR 28.27 billion (EUR 0.37 billion) in 2013. The industry itself is one of the fastest growing globally and is expected to grow further at a constant rate. Overall, India’s traditional toy and game market has managed to double its size since 2008, while other powerful nations, like the USA, show almost no more growth potential (Euromonitor, 2014). The key elements contributing to this positive effect are the growth of the middle class with a higher disposable income and the increased aware-ness for high quality products (Spielwarenmesse, 2014). That is why the demand for branded products is growing, despite the constant



threat from low-cost, unbranded toys or illegal imports, which repre-sent 59% of total sales.

Consumers. The largest group of end users in the Indian toy indus-try are pre-teenagers between 7 and 12 years of age, generating 44% of total sales. In total 81% of traditional toys and games sales are products for children below the age of twelve (Euromonitor, 2014). The potential of such a distribution of consumers lies in India’s young population, with 28.9% of people below the age of 14. In 2012, the number of kids below the age of 12 reached 96 million (in 2000 this number was 91 million) (Euromonitor, 2013).

Traditionally, kids in India have not been seen as a significant con-sumer segment. In recent years, as a result of income growth and a shift in parenting attitudes, kids are being taken more and more seriously as consumers within their household. Nevertheless, parents are the main decision-makers for all purchases, including toys. The demand for prod-ucts with educational value is very high. Simultaneously, due to struc-tural shifts that have contributed to a higher purchasing power, consum-ers more often opt for branded products with higher quality standards and are more often willing to spend more money on toys or games (Euromonitor, 2007). The recently emerging awareness for quality products and the increase in disposable income show their effects within the Indian toy and game industry: spending on low-cost toys and games is declining, while mid, upper-mid and high price categories of toys and games are increasing in sales (see Table 5).

Table 5. Price segments for traditional toys & games in India

Traditional Toys & Games

Price levels INR Price levels USD 2008 2009 2010 2011 2012 2013

Pocket money Under 100 Under 1.3 35.0% 31.0% 28.0% 23.0% 19.0% 17.0%

Low 100–199 1.3–2.6 39.0% 42.0% 43.0% 45.0% 46.0% 45.0%

Mid 200–499 2.6–6.5 9.1% 9.5% 10.0% 11.0% 11.8% 13.0%

Upper-mid 500–799 6.5–10.5 6.3% 6.5% 7.0% 8.5% 9.4% 10.0%

High 800 and above 10.5 and above 10.6% 11.0% 12.0% 12.5% 13.8% 15.0%

Total 100% 100% 100% 100% 100% 100%

Source: Euromonitor Passport Database (2014). Statistics retrieved on 23 November 2014.



Brand awareness has grown among kids as a result of the growing number of TV channels. Pre-teenagers are heavily influenced by what they see on TV and social media, in addition peer pressure tends to play a powerful role in determining which product kids from this age group want. As a general trend within the industry, toy and game manufactur-ers often add elements to their products that are specific to the Indian culture. Also, products that relate to popular TV or movie characters (i.e. action figures) are gaining more popularity among children and youth (Spielwarenmesse, 2014).

Euromonitor (2013) reports that Indian consumers have enjoyed rising levels of disposable income and, as a consequence, there has been a rise in consumer expenditure. However, an average of 9.3% of inflation was reported in 2012, and as a result of the rising prices of food and fuel many consumers were forced to become more cautious about their spending.

Independent small neighbourhood retail stores are among the favou-rite stores for Indians to shop in. Despite that, recent reports confirm that more and more consumers are turning to the internet and making online purchases. Deeper penetration of the internet, the growing num-ber of smartphones and greater acceptance of credit and debit cards has boosted this trend (Euromonitor, 2013). The internet is known to be a place where goods can be found at a lower price, and this fact has proven to have great influence among Indian consumers when deciding upon where to shop.

Competitors. The toy and game market in India is characterised by high competition, both international and domestic. Nevertheless, the market still promises great future potential for growth, which will attract even more companies in the years to come. The market is very diverse, though it is dominated by unbranded local producers. Table 6 shows the key players in the Indian toy and game market, with Mattel Toys India Pvt and Funskool India Ltd as the leaders.

Mattel Toys India is a subsidiary of the US brand Mattel Inc and of-fers a wide range of traditional toys that are mainly produced in China and imported to India. Funskool India, a joint venture between Hasbro Inc and Indian tyre producer MRF Ltd, holds a variety of licenses, es-pecially from Hasbro, Walt Disney and Warner Bros. Funskool manu-factures, distributes and sells its toys and games not only for the domes-tic market, but also exports products to other countries in South Asia, the Middle East and Western Europe (Euromonitor, 2014). Branded toy



manufacturers have experienced growth in market share over the past 5 years. At the same time unbranded manufacturers have been losing market share, which indicates a positive trend for the branded toys in-dustry in India.

Table 6. Key competitors in India’s traditional toys & games industry

Company 2009 2010 2011 2012 2013

Mattel 8.7% 9.2% 9.7% 9.7% 9.5%

Funskool 7.9% 8.2% 8.5% 9.0% 8.2%

OK Play 2.6% 3.3% 3.5% 3.8% 4.0%

Simba Toys 1.9% 2.1% 2.3% 2.5% 2.7%

Zephyr Toymakers 1.5% 1.5% 1.6% 1.7% 1.8%

My Baby Excels 1.1% 1.2% 1.3% 1.5% 1.6%

Creative Educational Aids 1.0% 1.0% 1.1% 1.2% 1.3%

Kool Kidz 0.1% 0.2% 0.3% 0.3% 0.4%

Mahindra 0.1% 0.1% 0.2% 0.3% 0.3%

Pegasus Toys 0.1% 0.2% 0.2% 0.3% 0.3%

Others 75.0% 73.0% 71.3% 69.7% 69.9%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Euromonitor (2014, p. 26).

Distribution channels. A significant number of consumers in India buy cheap, unbranded toys and games from non-grocery retailers. How-ever, the share in overall retailing by non-grocery retailers has decreased, which indicates a higher demand for branded products. International traditional toys and games retailers such as Hamleys, Simba Toys and Landmark have already entered the Indian market and plan to expand the number of their stores across the country and especially in the main cities like Mumbai or Delhi (Euromonitor, 2014). In addition, the grow-ing number of hypermarkets will support sales of traditional toys and games in India. At the same time, an increasing number of consumers are gaining access to the internet and online retailing. Internet retailing is becoming a very important distribution channel due to better mer-chandise, greater variety, competitive pricing, and the offer of branded



goods. The overall share of internet retailing in sales grew from 1% in 2007 to 18% in 2012 (Spielwarenmesse, 2014) and is expected to rise dramatically in the next five years. In terms of traditional games and toys, online retailing in 2013 has been indicated at 0.6% (Euromonitor, 2014) and although it has shown growth over the years, it still remains low for toys and games sales. This is because Indian customers generally prefer to see and touch the physical product before making a purchase, and therefore prefer to buy toys and games at a local store rather than buying them online (see Table 7).

Table 7. Distribution channels in India’s traditional toys & games industry

Distribution Channels 2008 2009 2010 2011 2012 2013

Store-Based 99.4% 99.4% 99.4% 99.4% 99.3% 99.3%

Grocery Retailers 3.8% 3.8% 3.9% 4.0% 4.2% 4.4%

Hypermarkets 3.8% 3.8% 3.9% 4.0% 4.2% 4.4%

Non-Grocery Retailers 95.6% 95.6% 95.5% 95.4% 95.1% 94.8%

Specialist Retailers 93.0% 92.8% 92.5% 92.3% 91.8% 91.6%

Mixed Retailers 1.4% 1.5% 1.5% 1.5% 1.5% 1.6%

Other 1.2% 1.3% 1.5% 1.6% 1.8% 1.6%

Non-Store Retailing 0.6% 0.6% 0.6% 0.6% 0.7% 0.7%

Homeshopping 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

Internet Retailing 0.5% 0.5% 0.5% 0.6% 0.6% 0.6%

Source: Euromonitor (2014, p. 27).

Trends of the Indian market. The dynamic Indian market, being the world’s second fastest growing market for traditional toys and games, is characterised by several trends which can be imperative for making business in India. According to Euromonitor (2014), India’s market for traditional toys and games is expected to grow 79% between 2013 and 2018 (to INR 40.73 billion in 2018 compared to INR 28.27 billion in 2013).

Despite the overall promising outlook it is important to keep India’s unique culture and its traditions in mind, which very often have a strong impact on the country’s consumer culture. The Indian market does not always accept foreign schemes and Indian customers prefer if a product



has been tailored specifically to them (Nath, 2014). Therefore, changes in store layout and product design (i.e. Barbie doll wearing traditional sari and jewellery in the style of a typical Indian woman) are very pop-ular in India, and very often contribute to the very success of a product or brand. In addition, the growing urbanised middle class seeks value-for-money products (see Table 8). Offering a good-quality product at a relatively competitive price is the most effective strategy to tap the vast customer potential in India. Hence, it is advisable to determine the consumers’ willingness to pay for a product and consider the price of substitute products (Shah, 2000).

Table 8. Effective strategies for companies in the Indian market

Strategy Frequency % Response Rank

Good Quality and Low Price 118 94.40 1

Product Innovation 109 87.20 2

Cost Leadership and Differentiation 105 84.00 3

Niche Marketing 90 72.00 4

Superior Quality and Premium Price 77 61.60 5

Source: Shah (2000, p. 36).

The establishment of efficient supply chains is another, very impor-tant key element for achieving success in the Indian toy and game mar-ket. India, being a large and fragmented nation with a largely undevel-oped infrastructure, may pose some challenges in terms of logistics. The creation of effective supply chains and the use of innovative techniques can create a significant competitive advantage for retailers (Nath, 2014).

Granna’s dilemma: which entry mode is best to enter the Indian market? Although India is a potential market for expansion, Granna will need to consider many factors, even before preparing a business plan for en-tering the new market. The most important for Granna is to decide which entry mode is most suitable in order to achieve success in that market. In case of SMEs, many factors play an important role and are



required to be checked before making a final decision about interna-tionalisation. Most certainly the company owners do not consider enter-ing the Indian market by FDI (i.e. establishing a new subsidiary as a result of a greenfield investment or acquisition), due to a lack of re-sources and lack of willingness to engage in such a major undertaking. Therefore, Granna considers less risky, lower commitment entry modes (i.e. exporting, licensing, and offshoring) that allow for a more gradual market entrance in order to gain the necessary market knowledge and understanding.

Exporting. The first possible scenario for Granna is to sign a distri-bution agreement with a partner in India. The partner should have developed distribution channels in India’s biggest cities. In order to be assured that the contractor will manage to sell all the exported products, his financial situation needs to be checked. His total turnover within the last three years should not be lower than 10 times the value of the planned export. In case this value is higher, it could have a negative impact on the business model, which can be overused, for instance, to finance other company operations.

Exporting to India would entail a premium positioning of Granna products. In the Indian market, the premium segment of games (prices above EUR 11) accounted for 15% of total units sold in 2013 (Euro-monitor, 2014). The following calculations are based on the assumption that Granna’s export price1 of a premium product2 is approximately EUR 6. In order to estimate the final market price paid by an individual Indian client, transport and insurance costs, duty, retailer margin, and VAT should be taken into consideration. In case of sending a full 40” container containing 2,750 board games, transport costs including insurance should not exceed EUR 0.40 per piece (Live Mint, 2014). Additionally, a custom fee needs to be included. Currently, the border fee for toys & board games is 26% (Cybex, 2014). However, if Granna decides to export products, which will be categorised as educational, it will be possible to deduct up to 16%, due to the Indian education law. The retailer margin is another element to be included in the price calculations. In option 1, assuming distribution through traditional channels, the margin is ex-pected at a level of approximately 30% for distributors, and 50% for

1 Price that covers Granna’s manufacturing costs and includes Granna’s margin.2 In European countries, the market price paid by the final customers of premium

games is app. EUR 20–25.



direct retailers (Flatlined Games, 2013). In option 2, calculations exclude the premium margin for retailers, as Granna would focus its sales only on online distribution. Online distributors usually set their margin at a level of 30%. In the end VAT needs to be added, which can differ de-pending on the specific geographic area in which the good is sold. To facilitate the calculation, an average VAT rate of 12.5% is assumed. Table 9 presents the calculations.

The main advantage of exporting is the speed of setting up the com-pany’s presence in the target market. This method would enable Granna to find out what the real demand for their goods is and whether the Indian market is reliable for the future. On the other hand, due to the high price, the most important factor will be signing a contract with a business partner, which can target and reach the niche premium cus-tomers.

Table 9. Calculation of final market price in case of exporting

Option 1: Traditional distributor in India

Option 2: Online distributor in India

(1) Export price (manufacturing costs in Poland + Granna margin) EUR 6.00 EUR 6.00

(2) Transportation and insurance costs EUR 0.40 EUR 0.40

(3) Duty 26% EUR 2.30 EUR 2.30

(4) Distributor costs (1+2 +3) EUR 8.70 EUR 8.70

(5) Distributor & retailer margin (calculation based on distributor costs) EUR 6.96 EUR 2.61

(6) VAT 12.5% [VAT x sum (4+5)] EUR 1.96 EUR 1.41

Final market price (4+5+6) EUR 17.62 EUR 12.72

Source: own calculations based on www.dutycalculator.com

Licensing. The second mode that Granna could use to build its presence in the Indian market is licensing. In 2014, during the trade fairs in Germany, Pegasus ToyKraft Pvt. Ltd. offered to license Granna’s products. However, before agreeing on this form of cooperation, it is necessary to check the potential benefits of such an agreement, as well as the reliability of the business partner. ToyKraft is one of the young-est board game companies that managed to rapidly establish their posi-



tion in the Indian market. Since 2010, they are in the top 20 local manufacturers of toys. Currently, the company tries to obtain licenses on board game products, in order to extend its portfolio. ToyKraft is one of several Indian firms that try to license products from foreign companies. All in all, licensing is expected to grow in the Indian mar-ket, due to the fact that consumers are exposed to international products through television and marketing (Spielwarenmesse, 2014). Consumers are starting to trust foreign brands and even treat these products as superior and more trendy compared to local ones. Therefore, the licens-ing scenario could be beneficial to both, Granna and the licensee, who would have the opportunity to sell more units by using a European product image.

If such an option were to be implemented, Granna’s brand image could not be controlled directly by the company anymore, but there would be exposure in new channels and stores. Moreover, licensing could be very interesting given that the children’s entertainment market in India is steadily developing and local business partners have a greater opportunity to reach those end-users. From the licensor’s perspective, this entry mode could generate additional income – on a level of 5–8% of net sales in India (Flatlined Games, 2013). In this scenario it could be assumed that Granna’s games are positioned in the upper-mid seg-ment (not premium). Then, taking into consideration the price range in this segment (EUR 6.50–10.5) (Euromonitor, 2014), an average final market price at the level of EUR 8 could be assumed. Subtracting VAT, Granna would earn between EUR 0.35–0.57 on each game.

Even though this contract requires lower investments, it involves greater risk on the licensor’s side. In order to maintain a transparent cooperation, Granna would need to constantly control the number of products manufactured by the licensee ToyKraft, which could be ex-tremely difficult. If ToyKraft decided to break the rules of the contract, they would be able to sell products without the licensing fee and under-mine Granna’s image.

Offshoring & contract with a local distributor. The third available option is offshoring. Granna could consider the possibility of establishing a cooperation with a manufacturing company based in India. Such a con-tract should make it possible to reduce the total exporting costs (i.e. man-ufacturing in Poland, transport and insurance, duties). Sales could be maintained by the local distributors: online shops and/or local stores. The following paragraph presents the key benefits of offshoring to India.



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First, signing a contract with a local manufacturer would – in com-parison to exporting – eliminate the custom fee of 26%. Products would be produced in India, and only VAT would have to be paid. Second, the manufacturing costs would decrease significantly. Manufacturing costs in India are one of the lowest in the whole world, which is reflected in the Average Manufacturing Cost Index, developed by the Boston Con-sulting Group. Figure 1 shows that manufacturing costs in India are at a level of 85% compared to Poland, which provides a 15% advantage if manufacturing is moved there. Given that the export price is approxi-mately EUR 6 (and the price includes both manufacturing costs and the firm’s margin), it could be assumed that offshoring the production to India would lead to a decrease in the price that Indian distributors/re-tailers would have to pay. Therefore, the offshore vendor could expect Granna to pay max. EUR 5.10 per premium game (the price includes the vendor’s margin). Then, taking into consideration a 10–15% Granna margin, the distributor/retailer would have to pay approximately EUR 5.61–5.87 per game. Similarly to exporting, two types of distribution channels should be considered. If Granna opts for distribution through traditional channels, in order to calculate the end price that individuals would have to pay, we assume an 80% distributor/retailer margin + 12.5% VAT (in this scenario the end price would be EUR 11.36–11.87). If, however, Granna opts for online distribution, we could calculate 30% online retailer margin + 12.5% VAT (in this scenario the end price would be EUR 8.20–8.58).

Currently, facing the challenge of further internationalisation, Granna needs to decide whether to expand to the Indian market and, if so, which entry mode to choose in order to balance risk and profit potential. Thus, the company needs to consider not only the possible margin, but also the positioning of its products within the right distribu-tion channels, which will affect the sales potential in the respective segments.

Questions1. What are the main challenges Granna must face when entering the

Indian market? What are the opportunities?2. How will Granna’s internationalisation efforts with India differ from

the company’s previous internationalisation experience?



3. Which entry mode (exporting, licensing or offshoring) would be the best choice for Granna to enter the Indian market? Why? (compare the advantages and disadvantages of the different modes)

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Chapter 6

Mariola Ciszewska-Mlinarič, Artem Kovtun

SMEs and Alliances: The Challenge of Choosing the ‘Right’ Partner

Introduction

Globalisation makes it possible even for small and medium-sized en-terprises (SMEs) to seize entrepreneurial opportunities in foreign

markets. Among numerous factors, falling barriers to trade and foreign direct investment, convergence of customer needs in many product markets, as well as technology change, are the important drivers that underlie this phenomenon. Entrepreneurial firms may choose between various modes enabling their international expansion, but broadly de-fined strategic alliances may be particularly suitable for firms operating in virtual environments that seek to go international. However, one of the fundamental factors that determine the alliance performance is the selection of the ‘right’ partners.

The objective of this chapter is to shed light on the process of select-ing international partners by internet-based SMEs. To this end, we present a case study of Ankietka.pl, a Polish online survey development company. The study findings reveal that in case of small, internet-based firms, the partner selection process may be more opportunistic than deterministic. Moreover, it significantly affects the selection of foreign markets.

The chapter proceeds as follows. First, we present a short overview of strategic alliances. In the next section, we summarise the key findings of prior research concerning the process and criteria of

130 Mariola Ciszewska-Mlinarič, Artem Kovtun


international partner selection. Finally, we present a case study of Ankietka.pl.

Strategic Alliances Strategic alliances may take different forms, are differently defined, and diverse terminology is used. For example, Culpan (2009) singled out several terms that are used in the alliance context including: strategic alliances, cooperative ventures, interfirm cooperation, collaborative ventures, interfirm partnerships, networks, coalitions and joint ventures. In general, however, they are considered as voluntarily established co-operative ventures by partners that seek to achieve mutual benefits. In the context of SMEs, Franco and Haase (2015, p. 169) define an alliance as ‘a mutual decision adopted by two or more independent firms in order to trade or share resources for mutual benefit’, indicating that the term ‘interfirm alliances’ is particularly suitable for SMEs, as it ‘embraces both informal and […] formal/contractual agreements without and with shared risks and rewards’ (p. 169).

The model of managerial decisions leading to the establishment of various types of alliances specifies three main stages of this process (Tallman and Shenkar, 1994):• Stage 1: to cooperate or not to cooperate? When entering foreign markets,

managers have to decide which mode, i.e. market transactions (exporting), hierarchy (wholly owned subsidiary) or cooperation within alliances, is most suitable for the firm.

• Stage 2: Contract or equity? Assuming the managers opted for alliances, in the next step, they need to choose between contractual and equity forms. Contractual alliances (non-equity) are based on agreements that do not concern/or lead to a change in the ownership structure of the companies. In contrast, equity alliances1 are based on the purchase or exchange of shares between companies.

• Stage 3: Specifying the terms of the relationship. Finally, the managers need to decide what specific form of contractual or equity alliance to choose (Figure 1).

1 Three major types of equity alliance include: strategic investments (when one partner is purchasing the shares of another company); cross-shareholding (when each partner has shares of others); joint-venture (a new legal entity created through the provision of capital by two or more partners).

SMEs and Alliances: The Challenge of Choosing the ‘Right’ Partner 131


Figure 1. Types of strategic alliances

Source: Adapted from Tallman and Shenkar (1994, p. 101).

International strategic alliances have been among the leading topics in the discipline of international business (Puślecki et al., 2015). Stra-tegic alliances as a mode of foreign market entry offer a number of benefits (Gorynia and Kasprzyk, 2014), and three of them are of par-ticular importance. First, they reduce costs, risks and uncertainty of international growth. When entering foreign markets with a collabora-tive entry mode, managers expect that not only costs and risks will be shared with a partner, but they also expect to gain access to the partner’s knowledge about the local market. Moreover, contractual alliances such as licensing or franchising facilitate localisation and using location ad-vantages, and they also enable a licensor to gain first-mover advantages, they protect markets from competition, create market entry barriers, and build brand recognition (it is worth noting that licensing/franchis-ing is quicker than capital alliances in terms of launching products) (Aulakh et al., 1998). Secondly, alliances enable firms to gains access to complementary resources and partner competences, which creates new opportunities for learning and acquiring knowledge. In other words, they enable firms to fill resource gaps and gain access to new resources (Das and Teng, 2000; Teng, 2007). Third, alliances can be seen as real options (Tong et al., 2008). Most commonly, the option is defined as the right (but not obligation) to take certain actions in the future. In case of alliances, particularly in case of JV, initial investment allows a company to become familiar with the partner-firm and its competence, so that managers may decide later to increase or fully acquire the shares in the joint venture (they may, but they are not forced to do that).

Although alliances offer numerous benefits, they do not always result in the positive/desired outcomes. One of the typical problems concerns partner selection. There is a significant threat of opportunistic behaviour

Strategic Alliance

Contractual alliance• Co-marketing• R&D contracts• Turnkey project

Equity alliance• Strategic Investment• Cross-shareholding • Joint venture



of a partner who uses the knowledge or resources gained from the alli-ance in a unauthorised manner. We address this issue in a dedicated way in the next section of this chapter. Among other typical problems in inter-organisational relationships that lead to internal conflicts and distrust, Harrigan (1988) and Owens and Quinn (2007) enumerate: internal competition over control; resource asymmetry; strategic asym-metry; operational asymmetry; cultural asymmetry and learning prob-lems; managerial opportunism and/or contract incompleteness. Addi-tionally, in contractual alliances risks related to quality, production, payment, contract enforcement, and marketing control are higher than in capital alliances (Buckley and Casson, 1998; Quinn and Doherty, 2000). Table 1 presents some advantages and disadvantages of alliances as a mode of market entry.

Table 1. Advantages and disadvantages of alliances

Definition Cooperation with another company or companies in order to obtain mutual market benefits.

When? • When entering a new market.• Fast-changing or growing market.

Advantages • The division of risk, cost and uncertainty – lower capital commitment of alliance parties

• Entry to the market (achieving market penetration and overcoming initial entry barriers; relatively quick to execute)

• Risk reduction (reduce financial exposure and reduce macro risk)• Access to complementary assets/resources and learning opportunities – access to tacit

knowledge (marketing, technology), access to relational assets (partner network ties)• Possibility to use alliances as real options – flexibility

Disadvantages • Lack of full control over the resources and assets• Wrong choice of partner• Partner opportunism• Risk of creating a competitor• Risk of disclosure of confidential information• Conflict of interest between the partners

Source: adapted from Ernst & Young (2015).

In the context of internationally oriented SMEs, managers seldom opt for entry modes that require a high commitment of resources. Given the liability of smallness, i.e. the scarcity of resources such as time, people or capital (Kale and Arditi, 1998, Aldrich and Auster, 1986), SMEs most often opt for exporting (European Commission, 2010). This



entails the lowest commitment in case of potential market exit (Wrona and Trąpczyński, 2012). However, contractual alliances may also be an interesting and feasible option for SMEs, especially for those operating in virtual environments. However, the decision to form such an alliance is risky, as the potential benefits are largely dependent on the partners that were selected.

Table 2. Taxonomy of SME alliances

Deliberate Exploratory Improvised Strategic

Determined-ness of object-ives

High Low Low High

Ascertainment of strategy

Low High Low High

Basic strategy of alliance*

No specific strat-egy, but inten-tional/ deliberate beginning

Exploratory and strategic drivers

No strategy at all, unintentional drivers

Several, especially strategic drivers

Partner selec-tion criteriaAlliance ob-jectivesSuccess factors

Local/regional partnersComplementarity and compatibilityDesignated objectives, espe-cially production orientedNo specific success factor; based rather on ‘management of convenience’

Broad and defined mixture of partner selection criteria, based on reputation, resource contribution, business culture and regionalismNo determined / but manifold objectives, ranging from resource access to competitive-ness and market share reinforcementSeveral success factors, marked by communication and balance of power

Weak importance of partner selection criteriaComplementarity and cultural aspects unimportantNo specific objectivesSuccess based on prior alliance experience

Complementarity, reputation and resource-focused part-ner selection criteriaObjectives based on sharing of risks and costs as well as learn-ing and competence developmentSuccess due to relationships, com-patibility and prior experience

*Note: Franco and Haase (2015) classify the alliance ‘basic strategy’ in terms of initiating the process and alliance drivers, i.e. strategic drivers (the surrounding competitive environ-ment, perception of the commitment of the other party, consequences of costs/benefits assessment); exploratory drivers (decision taken in an exploratory way, similar efforts had already been made) or drivers not determined/unintentional (appearance of a business idea, participation and experience in other agreements, limitations pursuing goals).

Source: adapted from Franco and Haase (2015, p. 178).



Franco and Haase (2015) have recently proposed a noteworthy taxonomy of SME alliances that is based on two dimensions: deter-minedness of alliance objectives and ascertainment of alliance strategy. The researchers identify four types of alliances: deliberate, exploratory, improvised and strategic, which differ in terms of drivers, objectives, partner selection criteria, and success factors (see Table 2).

The typology can be used by SME managers to better understand their alliance engagement, behaviour, as well as the efficiency of in-terfirm relationships. For instance, ‘strategic’ interfirm alliances have clearly defined alliance strategy, objectives, and partners selected on the basis of numerous criteria. On the other extreme, ‘improvised’ alliances result from spontaneous decisions and unprepared actions driven both by positive past experience and/or unexpectedly emerging opportunities; success factors are largely overlooked, so failure risk is high. Finally, ‘deliberate’ and ‘exploratory’ alliances comply with ‘some important requirements for successful partnering, but with strategic or target-oriented deficits, respectively’ (Franco and Haase, 2015, p. 179).

Outlining the practical value of the taxonomy, Franco and Haase (2015, p. 179) assert that: ‘before entering into interfirm alliances, SME managers should have a clear idea of why they engage in such cooperation, what characteristics their partner should possess and which outcomes they expect. Bearing these aspects in mind facilitates access, increases the efficiency of interfirm alliances and reduces the risk of alliance failure’.

Selecting Partners for International Expansion – Process and CriteriaPartner selection is seen as one of the essential factors that influence the success and failure of an alliance, in the context of both large firms (Geringer, 1991; Ireland et al., 2002; Lajara et al., 2003; Shah and Swaminathan, 2008; Holmberg and Cummings, 2009) and SMEs (Kirby and Kaiser, 2003; Franco and Haase, 2015). Thus, the selection criteria as well as the process of partner selection are of interest for alliance re-searchers.



Partner selection criteria and alliance performance

Over the last decades, alliance researchers have devoted considerable attention to the selection criteria that affect the choice of a ‘right’ part-ner. Geringer (1991) was amongst the first researchers who proposed a parsimonious classification of the partner selection criteria. He con-tends that two groups of criteria, i.e. task-related (operation-related) and partner-related (cooperation-related), should be taken into consideration by firms establishing alliances. First, task-related criteria refer to the operational and business skills and resources that are required for a ven-ture success (Geringer, 1991), and examples of such criteria include: patents or technical know-how, financial resources, experienced mana-gerial personnel, and access to marketing and distribution systems. Second, partner-related criteria are associated with the cooperation between partners, and more specifically with its efficiency and effective-ness (Geringer 1991), including: the partner’s national or corporate culture, prior positive association between the partners, compatibility and trust between the top management teams of partnering firms, as well as the partner’s size or organisational structure.

The relevance of Geringer’s (1991) typology was supported in later research. For example, Ariño et al. (1997) in their cross-sector, cross-country qualitative research identified that firms originating from Western Europe employed the following key criteria in partner selection: knowledge of the market conditions and environment, political influ-ence, partner’s reputation, potential to maintain a continuing and stable relationship, position within the industry, professionalism, honesty and seriousness, fit, and enthusiasm for the project. Glaister and Buckley (1997), in a quantitative research based on a sample of 203 UK firms, also support Geringer’s observations indicating that both task-related (incl. access to knowledge of local market, access to distribution chan-nels, access to links with major buyers, and access to knowledge of local culture) and partner-related criteria (incl. trust between the top man-agement teams, relatedness of partner’s business, and reputation) are important in partner selection. Summarising the extant research on partner selection criteria, Franco and Haase (2015) point out that in addition to findings reported by Ariño et al. (1997) and Glaister and Buckley (1997), also other criteria received empirical support, including: financial capacity (Hitt et al., 2004); previous experience of cooperation (Harrigan, 1985); trust (Gulati, 1995; Spence et al., 2008); similar cul-



tural background or culture (that helps avoiding difficulties in the co-operation process) (Ariño et al., 1997; Swoboda et al., 2011); and a good position in the economic sector (Chung et al., 2000; Spence et al., 2008). It is also postulated that in the SME context the geographic location can be an important criterion for choosing an alliance partner (Franco and Haase, 2015).

The cumulative research evidence suggests that partner selection criteria can also be an important driver of alliance performance (Ireland et al. 2002, Shah and Swaminathan, 2008; Lajara et al., 2003; Kirby and Kaiser, 2003, Holmberg and Cummings, 2009). Among partner-related criteria (Geringer 1991), compatibility and trust were found to be the key factors that determine the alliance success or failure (Shah and Swaminathan, 2008), also in the SME context (Swoboda et al., 2011), due to the fact that compatibility of goals, and trust-based rela-tionships lower uncertainties as well as the likelihood of the partner’s opportunistic behaviour (e.g. Gulati, 1995; Das and Teng, 2001; Swo-boda et al., 2011). Additionally, prior research provides evidence that the similarity of the partner’s culture allows cooperating firms to avoid/lower tensions in the cooperation (Ariño et al. 1997; Swoboda et al. 2011). According to Franco and Haase’s review (2015), other variables that influence the alliance performance (in terms of its success and failure) include: the attitude of human resources (Lajara et al., 2003) and frequency of contacts among partners; the accumulation of ‘rela-tional capital’ (Townsend 2003); balance of power and control (Inkpen and Beamish, 1997; Heimeriks and Duysters, 2007); type of partners (i.e. alliances between competitors are reported to have a higher failure rate than those between non-competitive partners) (Dussauge and Garrette, 2000).

Finally, researchers have emphasised the importance of complemen-tarity of resources for alliance performance (Geringer, 1991; Chung et al., 2000; Spence et al., 2008; Hoffmann and Schlosser, 2001), main-taining that the benefits resulting from an alliance can only be fully realised if each partner provides the complementary resources and skills that the other lacks. Geringer (1991) sees task-related comple-mentarity as a fundamental objective and a basis for partner selection, and concludes that partner selection influences the overall mix of the alliance skills, knowledge and resources, its operating procedures, and the short- and long-term viability. According to Geringer (1991), man-agers seeking a partner ‘must determine the specific task-related skills



and resources they may need from a partner, as well as the relative priority among these needs. This requires management to thoroughly analyse their own firm and compare their current and potential future capabilities to those deemed necessary for [alliance] success to deter-mine what additional task-related capabilities may be necessary in order for the [alliance] to be competitively successful. Management must also establish priorities among these desired capabilities’ (Ger-inger, 1991).

Formation patterns: determinism versus opportunism

Owens et al. (2012) observed that the partner selection process, which provides a basis for alliance formation, may take two different formation patterns – planned (deterministic) or/and reactive (opportunistic). First, alliances (in Owens et al.’s research – international joint ventures) may occur through a deterministic model, which emphasises economic analysis, deliberateness of choices and planning in the process of foreign partner choice. This confirms many earlier writings that present partner selection as a deliberate, rational and linear pattern, in which firms first identify, screen, evaluate and finally select partners (Geringer, 1991; Owens et al., 2012). Also in the realm of SMEs, careful preparation for partnership and strategic planning were found to be vital for alliance success (Hoffmann and Schlosser, 2001). Thus, this approach is typically characterised as planned and pro-active, requiring extensive planning and market research, as well as the use of existing network ties to find and select partners. Such an approach resonates well with transaction cost economics (Hennart, 1988; Wiliamson, 1985), which focuses on formal rational analysis, as well as with network considerations, which postulate that firms may have an inclination to choose partners from their existing networks to lower uncertainty in terms of foreign expan-sion (Gulati, 1995).

However, Owens et al. (2012) also revealed the existence of another pattern of partner selection. The reactive (opportunistic) model reflects the situation where firms are approached by foreign partners, without a clear intention to form an alliance, and ‘without subsequent systemic and planned partner selection’ (Owens et al., 2012, p. 403). Therefore, the reactive (opportunistic) pattern highlights situations where an alli-ance is formed as a result of a reactive process, implying that foreign market selection and expansion can be driven by external partners that



approach a firm. In this model, formal planning and selection procedures are either not applied, or are substantially shortened. The firms’ actions are more impulsive, as they decide to leverage opportunities emerging from the unexpected partnering offers. This is in line with prior research findings that revealed that partner selection can have a reactive charac-ter, and that firms do not consistently use formal search procedures (Nijssen et al., 1999, Owens et al., 2012).

The Case of Ankietka.pl

Ankietka.pl – company profile

Ankietka.pl is a leading Polish website for creating intuitive, friendly and customisable tests and online surveys. Currently, the company is ranked number one in the Polish market in terms of both revenues and user base. As of 2015, Ankietka.pl has more than 100 000 users, and the total number of completed surveys has exceeded 116 million.

The origins of the company date back to 2007, when two students of the Warsaw University of Technology, Marcin Racino and Piotr Sad-owski, developed a free, simple tool for students to create surveys for their bachelor/master thesis, or any other school or university project. Soon, Ankietka.pl became enormously popular among students as a free and efficient instrument allowing them to achieve high grades. After a few years, however, the founders realised that their ‘free tool’ can be converted into a viable business idea, and they quickly realised the im-portance of B2B orientation. Then, a third co-owner, Marcin Skowronek (a graduate of the Faculty of Management of the University of Warsaw) joined the company. Being a reliable and affordable solution for all types of clients, additionally driven by word of mouth among students and Internet users, Ankietka.pl skyrocketed in Poland. At present the com-pany is run based on the freemium2 business model.

2 Freemium is defined as ‘a pricing strategy by which a product or service (typically a digital offering or application such as software, media, games or web services) is provided free of charge, but money (premium) is charged for proprietary features, functionality, or virtual goods’ (source: http://en.wikipedia.org/wiki/Freemium, re-trieved on: 20.05.2015).



Inception phase

The idea came to Marcin Racino in 2006, when his colleague asked him to fill in a paper survey, which was part of a university project. Being an Internet-technology freak (actually, he was one of the first Poles who created an account on Facebook) and a serial entrepreneur, he instantly saw a market opportunity. A simple tool for online surveys was quickly created. Soon the popularity of the tool exceeded his wild-est expectations, and the initial platform code and solutions proved inadequate. Marcin realised that the hosting and software supporting Ankietka.pl should immediately be upgraded to be able to handle a fast-growing flow of free-product seekers. That is how the second co-founder with technological expertise, Piotr Sadowski, joined Ankietka.pl. He recalls:

“We spent an entire weekend at Marcin’s apartment with 20 Tigers (substitute of Red Bull) completing half of the code for improving the platform.”

In 2007 the company was legally established. Although the users (both individuals and corporate clients) were not ready to pay for using online services at that time, the business did not require vast capital to invest (the costs included the domain – PLN 100 per year, and server – PLN 1000 per year). So the founders decided to promote a free prod-uct, creating brand recognition in that way. One of the founders ex-plained that:

“We spent four years offering our platform for free and eventually we found ourselves having a well-known brand. If one has cool sneak-ers, he calls them Adidas, even though it’s a totally different brand. The same story with Ankietka: students never said, ‘Let’s conduct a survey’, they would rather say, ‘I have to fill in an Ankietka’. That made things happen.”

Individuals (mostly students) enjoyed the free tool. They posted online invitations to fill in surveys as well as the results of their surveys (in both cases the Ankietka.pl logo was visible). That built a basis for improvement of Ankietka’s positioning in the Google search results list, and led to more users visiting the website. However, the project still remained non-monetised and since two main domestic competitors (Ankieter and Webankieta) were gaining up on the brand, the situation started to be threatening. However, everything changed with the first big contract.



Domestic growth

2011 was an important year for the firm’s growth due to two events. First, Ankietka got its first big corporate client Empik.com – an e-commerce store, specialising largely in multimedia (Polish analogue to Amazon). Due to the relatively low costs of running the business, Empik instantly enabled the founders to reach their break-even point and even go further beyond it. Since then all the developments have been focused mostly on business customers with the mission to deliver a value-for-money, affordable, but high-performance tool, accessible to everyone with basic computer and Internet browsing skills. Moreover, the found-ers are strongly convinced that one of Ankietka’s key advantages over its competitors is the excellent customer service and support right on time. Piotr Sadowski says that:

“Support is one of our key advantages. When we were starting, the users were unaware that someone is actually sitting on the other side of the Internet, eager to help. But this has changed. At present we provide instant contact through telephone, online chat and quick e-mail replies, so that our clients are accustomed to being well served. Once they step in – they will not look towards the competitors anymore.”

Second, in 2011 the current version of the website was launched, introducing a zero-touch model (meaning clients are allowed to do al-most all operations on the website by themselves, without the necessity to contact the support team). A new advanced code for the platform was written, enabling the clients of Premium, Business and Enterprise ac-counts (mostly corporate users) to create their own surveys, with their brand names on it. This new feature significantly accelerated the process of acquisition of business users, since they became more interested in using Ankietka.pl’s services when conducting ‘their own’ surveys for particular purposes.

At that time it became clear that the company should have had a more clearly defined strategy, if it was to grow. As both founders (Marcin and Piotr) did not have the necessary knowledge or experience, they decided to look for a specialist. And so Marcin Skowronek, who was the found-ers’ friend, became the third owner and member of the company’s management, bringing valuable marketing and strategic management skills to the table.

In August 2013, the founders of Ankietka.pl decided to buy one of the competing portals – Webankieta.pl. The subjects of the deal were:



clients, servers, platform codes and the brand itself. One of the founders admitted the following:

“Frankly, I still don’t know how we came to the idea of buying We-bankieta.pl. There was an opportunity and we decided that it was a good time to step in. We negotiated a highly attractive price and got a sig-nificant push for expansion. But with acquiring Webankieta.pl we have obtained something far more valuable.”

Indeed, this acquisition enabled Ankietka.pl to hit several aims simultaneously: they got strategically vital corporate clients, eliminated the rival, and obtained a new brand name. Since then almost all We-bankieta’s clients have migrated to Ankietka.pl, as the latter offered more functionalities and a better support for the same price. In the meantime, the founders conducted a market research among both clients and non-clients. The findings revealed that the name ‘Ankietka’ was not the best choice for a professional service and might be limiting the platform from charging higher prices for the services, being at the same time potentially harmful for launching the premium service. All these facts encouraged the management to draw a clear distinction between the brand that offered free services – Ankietka.pl, and the business-aimed platform – Webankieta.pl. One of the founders points out that:

“Ankietka proceeded to deliver our brand to potential users, whereas Webankieta focused on enterprise clients, enabling us to get by with only corporate clients. Splitting clients was important for us; it separated the source of income from the source of creating brand-loyalty.”

At present, the company does not undertake any marketing activities other than having a high position in the natural search results in Google, which generates 70% of new clients. The other 30% is acquired by word of mouth or networking. Currently over 96% of the revenue comes from the corporate segment. When asked about the future of the business, Piotr Sadowski indicates the following goals:

“Our goal is to move all customers to the Business level account via the zero-touch service model on the website, and provide on-board sup-port for Enterprise level customers.”

Over the years, Ankietka.pl has become an unquestionable leader in the Polish market. It is a profitable enterprise, characterised by a con-sistently high growth rate (measured by sales revenues): 65% in 2011, 82% in 2012, and 47% in 2013. However, the domestic Polish market is not the only market in the firm’s portfolio.



International expansion

It was 2012 when the founders started to think about the further direc-tion of Ankietka’s growth and development. Two options were analysed: 1) broadening the product portfolio by adding complementary services (such as Internet-based market research panels); and 2) concentrating on what works perfectly in one market and expanding beyond the coun-try of origin towards others. The second option seemed to be more promising. Piotr Sadowski explains that:

“At the end of 2012 we noticed that if we were going to achieve more, it was vital to grow internationally. As the users of the Polish market seemed to be reluctant to pay more for services like ours, it offered lim-ited opportunities to grow. We liked what we were doing, and that is why the only variant to maintain the business dynamics was to go in-ternational.”

Indeed, European markets were at different stages of development when it comes to online survey platforms. Western European markets were more mature in comparison to CEE markets in terms of corporate client needs and expectations, as well as the intensity of the rivalry. For instance, in the UK or Germany the awareness of the SurveyMonkey brand was so high that entering these markets was out of Ankietka’s reach. Whereas CEE markets were not ‘invaded’ by international com-petitors, which made them more attractive in the eyes of Ankietka’s founders.

When an enterprise reaches the point of international expansion, a typical textbook approach suggests that this decision should be sup-ported by a detailed analysis of the opportunities and threats, concern-ing at least: market selection (what market(s) should be targeted? What are the key characteristics of the selected markets in terms of size, customer requirements, legal regulations, etc); and entry mode selection (i.e. the choice between exporting, contractual modes such as licensing, establishing a joint-venture with a local partner, or a wholly owned subsidiary). However, in case of Ankietka.pl the decision to go interna-tional was based rather on intuition than supported by a formal analy-sis, and also market and entry mode selection were driven by opportuni-ties resulting from the founders’ personal networks.

One of Ankietka’s co-founders used to work in a Polish subsidiary of a multinational corporation, operating in a number of European coun-tries. This experience allowed him to develop a wide range of personal



contacts all over Europe (especially in CEE countries). And among his connections, the friendliest relationships he developed with people from the Czech Republic and Hungary. According to the founder:

“The idea to go international popped up almost instantly and right after that I called my former colleagues in the Czech Republic and Hun-gary and offered partnerships. And they were all eager and ready to cooperate.”

It was agreed that the local (Czech and Hungarian) versions of An-kietka.pl would have the same features and provide the same set of values as in Poland (of particular importance was the responsive cus-tomer service). Except for the obvious necessity to translate the website into two foreign languages, other local adaptations included billing in the local currency, and minor adaptations of the website design so that local preferences would be met.

The foreign partners, possessing the knowledge and understanding of their respective markets, were supposed to take on the responsibility of introducing this powerful and convenient tool for online surveys in their markets, as well as providing the customer support.

One of the issues that Ankietka’s founders had to face was the change in relationships with the foreign partners – from purely friendship-based to business-based relations:

“It is pretty hard to establish business relations with partners, with whom previously one had only friendship-based relations. Let’s say we drank beer and chilled yesterday, but today we are trying to reach a business agreement. Even after we actually started we failed to es-tablish the necessary more formal business interactions, and several times our partners turned out not to be as serious about the business as we were.”

It turned out that the preparation of the licensing contract was a time-consuming task. The entrepreneurs requested the assistance of a profes-sional to do the job:

“As our lawyer said: ‘A contract is for bad times, never for good ones’. It was the first time we (Ankietka.pl’s owners) realised that the approach ‘Come on, everything will be OK’ doesn’t work. Due to this the process of drawing up and signing the agreement took too much time.”

It was also the cornerstone of the change in character of the relation-ships between the partners – from utterly informal, personal relation-ships, they were transformed into formal, business-oriented relation-ships.



According to the contract, Ankietka is responsible for: providing a prod-uct, developing new local features for the platform, platform consultancy, the translation of any amendments to the documentation and to the new platform features (Polish – English). The foreign partners are responsible for: searching for new clients in their markets, and promotion/marketing activities, as well as translations (English – Czech/Hungarian).

Even before signing the contract, the partners started working on other tasks, including the translation of the entire basic documentation, and adjustment of the program code to the new local requirements. One of Ankietka’s founders mentioned that they had to face many issues that had not been expected at the very beginning:

“When we started dealing with the translation, problems started to pop up one by one: differences in bill issuing, differences in the provision of payments, legal aspects and regulations, private policy, personal data pro-tection policy etc. By the time we finally launched the Czech and Hungar-ian versions, we invested four times more of our time than we had planned.”

With the emergence of new problems delaying the start of the project in the Czech Republic and Hungary, the team began to feel a tremendous lack of time. Finally, in December 2013 (Hungary) and January 2014 (Czech Republic), after one year of intensive work, both foreign versions of Ankietka’s platform were launched.

One year later it became clear that the performance of the Czech and Hungarian partners was poor. A number of drawbacks in the partner-ships became visible. The ultimate negative result was that there were no clients. For some reason both foreign websites failed to generate the necessary traffic.

According to Ankietka’s founders, the unsatisfactory results could be attributed to several problems. First, the foreign partners did not put much effort into attracting new clients. It became clear that they treated Ankietka’s project as secondary to their permanent jobs; obviously, they perceived themselves as part-time entrepreneurs, and such an approach did not work. Second, although both foreign partners possessed the technological competence and understanding of their local markets, they lacked professional selling skills. Third, a number of necessary adaptations of Ankietka’s code unpleasantly surprised the founders, and led to a considerable delay of the project:

“In the first year we received significantly more requests from our partners for improving/adapting the platform, adding additional features etc., than from foreign clients. It was really frustrating.”



Initially, all problems were handled ‘remotely’ – there were no eye-to-eye meetings, but instead the founders and foreign partners had Skype conversations once a week to discuss new issues and figure out what could and should be improved. At the end of 2014 the founders decided to invest some additional funds in the Czech Republic and Hungary (e.g. they decided all profits earned abroad would be reinvested in ad-vertising in these markets), giving it one year to improve the situation, before definitively concluding the cooperation. They also tried to im-prove the interactions with the partners by increasing the number of visits to the Czech Republic and Hungary and putting additional efforts into the marketing campaign and brand recognition (for instance, the owner-manager responsible for marketing is training foreign partners in marketing activities, which proved to be effective in the Polish mar-ket). Undoubtedly, it was an important learning experience for Anki-etka’s founders:

“If I had the experience I have now, I would spend more time on market analysis, fine-tuning the agreement by including clear conditions of cooperation. If I had the knowledge I have now, I probably wouldn’t have made those mistakes. We would have looked more closely at other markets. For instance, Spain is a great market, and many Eastern Euro-pean companies focus on Spain: here, Audioteka [a Polish seller and producer of audiobooks on the Internet] is a great example. Russia – enormous market, but very specific. However, due to the sanctions, foreign investors are reluctant to step in. Instability frustrates. India is another interesting market, but cultural differences matter. Furthermore, translation into Hindi would be another pain in the neck.”

Despite the difficult experience of the first international expansion, Ankietka’s founders have not given up their international ambitions. Cur-rently, they are in the middle of a market analysis for several countries. One of the criteria that is used for the evaluation of foreign market attrac-tiveness is ‘no SurveyMonkey markets’ (the rule of avoidance). In other words, foreign markets that are considered for international expansion are those where SurveyMonkey, a world leader, is not present. In addition, the founder admits that next time, when looking for a foreign partner:

“We will look for someone with a true entrepreneurial spirit. Some-one who already has some experience in this industry, is ready to devote his time to the business, and can prove his effectiveness. As the saying goes: ‘Ideas are cheap. Execution is priceless’. Of course, informal rela-tions and positive feelings about each other are also important.”



And the future will show whether and how the company’s interna-tional goals will be achieved. In Poland, however, Ankietka.pl remains both an interesting and pretty successful example of an Internet-based start-up.

Questions1. How do entrepreneurs recognise market opportunities? What factors

are of particular importance?2. What are the advantages and disadvantages of the deterministic vs.

the opportunistic approach to partner selection?3. How did partner selection affect Ankietka.pl’s internationalisation

choices (in terms of market and entry mode selection)?4. What criteria of partner selection should the managers of Ankietka.

pl use in the future?5. According to SME taxonomy of alliances, how would you classify

Ankietka.pl’s international alliances? What advice would you offer Ankietka.pl’s managers based on this taxonomy?

Recommended Readings1. Zucchella A. and Scabini P. (2007). International Entrepreneurship.

Theoretical Foundations and Practices. Palgrave Macmillan.2. Das T.K. (2011). Strategic Alliances in a Globalizing World. IAP

(Information Age Publishing).3. Linhart F. and Knoll C. (2014). Key Criteria for Selecting a Joint

Venture Partner on Emerging Markets. GRIN Verlag.

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Chapter 7

Mateusz Bodio, Monika Golonka

Corporate Entrepreneurship: Manager Initiatives Leading to a Reduction of Knowledge Leakages in Strategic Alliances

Introduction

Polskie Górnictwo Naftowe i Gazownictwo S.A. – PGNiG is a large, leading energy company in Poland. This company creates numerous

strategic alliances with their partners, both in Poland and at the inter-national scale. Sometimes, the allies are simultaneously the company’s direct competitors. What risks are related to such cooperation? How does the company deal with them? Is there a place for corporate entre-preneurship in alliances? In this study we aim to answer these questions. Thanks to interviews with top managers, as well as an analysis of sec-ondary data and the existing literature, we provide a description of the major threats associated with coopetition, and the methods of their reduction.

Definition of AllianceThe 21st century brings new possibilities of development for companies that search for new markets and new methods of expansion. Highly

152 Mateusz Bodio, Monika Golonka


developing and changing environments enforce continuous improvement in order to gain competitive advantage, and to survive in a more and more globalised world. One of the methods of competing that is gaining the attention of managers is creating partnerships with other companies, namely alliances.

The term ‘alliance’ comes from the French aliance, aliier meaning ‘marriage, combine, unite’ (Hoad, 2003). The phenomenon of coopera-tion between firms has been observed for many years. Recent changes related to globalisation processes and technology development lead to a growing meaning of mergers and acquisitions, as well as alliances between companies.

Alliance formation has been described as a method of access to ex-ternal resources and competences. One of the most important resources nowadays is knowledge. From this point of view, the main purpose of such cooperation is gaining access to knowledge – as the fundamental source of a company’s competitive advantage (Varadarajan and Cun-ningham, 1995). An alliance is a voluntary arrangement among inde-pendent firms created in order to exchange or share resources and engage in the co-development or provision of products, services or technologies (Gulati, 1998). Gulati (1998) highlights access to external resources as the major purpose of such cooperation. It is also important for companies to share their resources in order to learn from their partners. Therefore, the simplest alliance definition refers to two or more organisations that share resources and perform activities together in order to pursue a strat-egy, fulfil objectives and tasks (Johnson, Scholes and Whittington, 2008).

There are several different categories and types of alliances in the literature on the subject. One of the typologies involves distinguishing two groups based on capital investments. Contractual or non-equity alliances refer to interfirm cooperation created usually in order to realise a single task. These types of agreements are generally created for a de-fined period of time – for example licensing or franchising. The second group consists of equity ventures (jointly owned). In this group of alliances participant investments are one of the factors aiming to secure the effectiveness of the partnership. Companies create joint ventures in order to conduct, for example, R&D projects together, to share not only investments, but also costs of expensive research and development ac-tivities. Relationships between companies may take many forms, since the term alliance currently means any form of ties between firms

Corporate Entrepreneurship: Manager Initiatives Leading to a Reduction of ... 153


(Golonka, 2012). Interfirm ties differ in terms of their quality, formal structure, trust between partners, purposes, resources, etc.

In this study, we focus on joint ventures. A joint venture, as a separate entity created and jointly owned by two or more companies (remaining independent firms – called parents) is an equity venture. Aside from the benefits for the partners, problems might also arise during such coop-eration. In a joint venture the parent companies may use several methods of solving potential problems in their strategic alliance. Furthermore, they may also sell their shares and leave the partnership. In this type of alliances, organisations often cooperate with their direct competitors. Interactions between allies may create additional value, since partner-ships usually work on a synergy basis. However, such cooperation may also be a source of tensions and threats. In such a situation, companies may behave in two opposite ways: cooperate and compete – scholars called it the ‘coopetition paradox’ (Lozano-Platonogg, Rudawska and Pachciarek, 2014). This phenomenon – competing and cooperating at the same time – mostly occurs between companies that actually compete in the same market.

Cooperating and Competing: Coopetition

Coopetition is an interesting topic in management science, as some scholars perceive it as an innovation in cooperation (Lozano-Platonoff et al., 2014). The term coopetition derives from two opposing actions: competition and cooperation between organisations (Bengston and Kock, 2000).

Historically, these actions were perceived as two opposite sides of the same coin, but nowadays coopetition – both competing and cooperating – is perceived as one of the most effective strategies of company develop-ment (Bengston and Kock, 2000). Firms enter this type of partnership mostly for a short project, or research and development (R&D), in order to share costs, as well as the risks associated with uncertain actions. There are many reasons why companies enter into alliances with their competitors. First of all, small or new companies need investment capi-tal or technology necessary for their development. In order to gain access to resources, they may create an alliance with bigger, more mature partners that are well-equipped with such resources. Such partners may speed up the firm’s development and may participate in expensive, risky projects. The firms may also gain access to new markets, where their



potential partners already exist (Martin, 2003). Martin (1997) also indicates that large corporations may use strategic alliances to reduce uncertainty and at the same time increase probability of success. More-over, cooperating with competitors may foster the research and develop-ment process, when partners share their valuable knowledge and expe-rience. Finally, sometimes companies are simply forced to cooperate in order to survive. This phenomenon frequently happens in industries characterised by dynamic changes, knowledge and technology-inten-siveness (Golonka, 2012). However, some scholars argue that coopetition is not the best way of creating innovations because of the high risk of potential knowledge leakage (Bayona, Garcia-Marco and Huerta, 2001) or learning races (Inkpen, 2000).

Mohr and Puck (2013) pointed out that trust may positively affect governance of alliances and lead to an improvement of confidence, de-creasing the possibility of opportunistic behaviour of partners. Trust increases the likelihood of common goals being more important than private benefits. It also enhances cooperation, flexibility and shortens the time of decision making, it enhances commitment and partner con-tributions to the alliance.

Major Risks in AlliancesAlthough there are factors that improve partner protection in alliances, partners may have their own goals related to the strategic alliance. This generates risks that need to be categorised into two major types. First, the risks related to the firm’s future. A partner may copy or create a similar business model or steal key resources, which are essential for gaining com-petitive advantage. For example, in the early stage of cooperation the part-ners operate in different geographic markets, but after a few years they start to compete with each other because of, inner alia, the internationalisation process. A good example are the alliances of Japanese firms with their Western partners in the 20th century (Beck, Larson and Pinegar, 1996).

Second, the risks related to knowledge leakage, and learning race. Learning race has been described in the literature as a process heading for collapse. It starts when a company discovers that its partner wants to gain only private benefits and his aim is to gain access to knowl-edge. In this situation, once one firm has learned, it has no purpose continuing the partnership and incurring the costs of the alliance (tak-



ing into consideration that there will be no more common benefits). Being aware of that, the company which discovers the incentives of its partner wishes to avoid being the ‘slower’ company in the learning race (loser scenario), suffering from this alliance (Khanna et al., 1998). As a result, companies start to compete in ‘fast learning’. Inkpen (2000) points out that the real learning race requires the participants to ac-knowledge being in a race, however the loser scenario described by Khanna et al. (1998) may occur “as long as it is acknowledged that the loser was probably never aware that a race was happening” (p. 5).

Knowledge leakage is a multidimensional construct concerning in-tentional or unintentional outflow of knowledge in an alliance, going beyond its scope. Leakages may encourage opportunistic behaviours of partners and lead to a decrease of the company’s competitive advantage. Moreover, if the partners operate in the same markets, knowledge leak-age may cause even more problems, e.g. when a partner uses acquired resources in order to compete in the same market. This situation may occur in the above-mentioned learning race, where competing companies try to absorb knowledge as fast as possible, irrespective of the price. Understanding the potential consequences of knowledge leakages and awareness of the described processes may be of crucial meaning for an effective knowledge management in joint ventures. Knowledge leakages are difficult to avoid in many situations, for example during joint research on innovative products, or joint product development.

Corporate Entrepreneurship in AlliancesCorporate entrepreneurship is an organisational process that may im-prove company performance (Zahra, 1993, Barringer and Bluedorn, 1999). “Entrepreneurial attitudes and behaviours are necessary for firms of all sizes to prosper and flourish in competitive environments” (Bar-ringer and Bluedorn, 1999, p. 421). There are three major types of cor-porate entrepreneurship distinguished in the literature (e.g. Stopford and Baden-Fuller, 1994, p. 521):

– the creation of a new business within an existing organisation: cor-porate venturing or intrapreneurship;

– activity associated with the transformation or renewal of existing organisations;

– changing the ‘rules of competition’ for a given industry.



Different types of entrepreneurship may exist within the same com-pany. However, some scholars argue that corporate entrepreneurship might also be associated with:

– company growth (Drucker, 1985; Stevenson and Jarillo, 1990); – innovation (Backman, 1983) and innovative initiatives within the

company (Jemielniak and Kozminski, 2011).

Initiative seems to even be perceived as a “key manifestation of cor-porate entrepreneurship’ (Birkinshaw, 1997, p. 207). Initiative is a ‘dis-crete, proactive undertaking that advances a new way for the corporation to use or expand its resources” (p. 207). Furthermore, corporate entre-preneurship is often associated with the attitudes of individual members (managers and employees) within the organisation (Stevenson and Ja-rillo, 1990).

As Brandt mentioned (Kuratko et al., 2014), “Ideas come from people. Innovation is a capability of the many”. Corporate entrepreneurship may be perceived as a process that can facilitate efforts to innovate and ef-fectively deal with competitors. Companies enable corporate entrepre-neurship, which is envisioned to be a process that can facilitate efforts to constantly innovate. What is more, they deal with competitive reali-ties much more effectively (Kuratko et al., 2014). As a result of active attitudes of managers and employees entrepreneurial companies may discover new opportunities and explore them. In order to create the right conditions for corporate entrepreneurship, companies need to give au-tonomy and freedom to their employees, so that they are free to pursue actions and initiatives, regardless of the rules, and possible mistakes. (Doubiene, 2013). This also applies to alliances, where sometimes it is crucial to act independently from the existing strict corporate rules, or to create new ways of cooperating with partners.

Creating alliances might be perceived in this context as an initiative associated with the transformation or renewal of existing organisations, sometimes also leading to a change of the ‘rules of competition’ in the industry, aiming for company growth and the development of innovative products. Moreover, one of the ways of reducing the described risks in alliances, especially associated with knowledge leakages, might be in-novative actions undertaken by the entrepreneurial managers or em-ployees within the organisation.

What is even more interesting is that an alliance may be perceived as corporate entrepreneurship, or a method for developing entrepreneur-



ial activity (Montoro-Sanchez et al., 2009). Alliances play a key role in corporate entrepreneurship (Ireland et al., 2006), since interorganisa-tional cooperation leads to, inter alia, the development of innovations. There is a growing number of studies on entrepreneurship in alliances in the field of management. For example, Sarkar et al. (2001) argue that alliance entrepreneurship, namely alliance proactiveness (the extent to which an organisation engages in identifying and responding to partner-ing opportunities), positively affects the market performance of a com-pany. The research findings of Montoro-Sanchez et al. (2009) show that partner resources and skills are the most important assets when it comes to the negotiation process between allies. Also Teng (2007) analysed alliances and their impact on corporate entrepreneurship activities, including innovation, corporate venturing, and strategic renewal. The empirical study of Shu et al. (2014) entitled The Knowledge Spillover Theory of Entrepreneurship in Alliances shows that partner knowledge protection (which is regarded as a knowledge filter) can increase knowl-edge spillovers in alliances.

PGNiG and its Alliances

PGNiG is the leader of the Polish natural gas and oil sector. The company also operates in Libya, Pakistan, the Czech Republic, Denmark and in Germany. PGNiG is listed on the Warsaw Stock Exchange and is one of the largest Polish companies: the WIG20 index. What is more, the ma-jor shareholder is the Polish government. The core activities of this company include the exploration and production of natural gas and crude oil (largest oil extractor in Poland), as well as sales, imports and storage of gaseous fuel by the company branches. To show how big PG-NiG is, it is best to present the company in terms of numbers for the year 2013. Their revenue was almost PLN 29 billion. The company extracted 1099 thousand tonnes of crude oil and almost 5 million cubic meters of natural gas (PGNiG, 2013). Obviously, this company has a significant impact in terms of providing a safety strategy in energy for the entire country.

As a corporation, PGNiG has a broad alliance portfolio and also cre-ates alliances in order to expand internationally. The company can be considered proactive in identifying alliance opportunities, which is characteristic of an alliance entrepreneurship (Sarkar et al., 2001). The major alliances have been described below:



1. PGNiG – Tauron. The main purpose of this cooperation is develop-ing a power plant in Stalowa Wola.

This alliance is perceived by the energy sector as a perfect coopera-tion. As one of the interviewees said: “This alliance is one of the best so far. Our negotiations were short

and we immediately started our cooperation.” (DPGNiG1)2. PGNiG Upstream International AS (subsidiary of PGNiG) – joint

venture consisting of many partners in the Norwegian continental shelf.

3. PGNiG – Chevron Polska Energy Resources. Joint venture created for joint research in the field of shale gas in Poland.

An alliance between PGNiG Termika and Tauron Wytwarzanie has been created in order to establish the largest in Poland Combined Heat and Power plant. This joint venture is owned jointly (50% by each company). Both companies participating in the joint venture had the intent to learn from each other about market and partner operations. PGNiG’s contribution is natural gas for large customers (540 million cubic meters of natural gas delivered annually). PGNiG Termika, sub-sidiary of PGNiG, aims to expand to other market sectors. The partner firm, Tauron, tries to diversify its activities, gain new overall electric power and develop their own production capacity. Both cooperating companies are also competitors at the same time.

DPGNiG: “We are competitors in some way. We both have know-how in different markets

of the energy sector. Thanks to our cooperation we can actually learn about our bad and good sides.”

PGNiG also invests in the Norwegian Continental Shelf Project. For the purpose of this project, the Polish company has established the joint venture PGNiG Upstream International AS. The main purpose of PGNiG Upstream International is to explore and produce crude oil as well as natural gas. PGNiG has also created several joint ventures in other countries. For example, the company conducts work in Paki-stan for hydrocarbon exploration (and production) with Pakistan Petroleum LTD.

1 Director of Strategy and Growth in PGNiG, member of the Board of Directors.



DPGNiG: “Our main objective of establishing multiple joint ventures with others is to reduce financial risks.”

The third alliance: PGNiG – Chevron Polska Energy Resources seems to be very interesting because of its significance in developing shale gas in Poland. It is believed that this natural gas may be a source of competitive advantage of the country. Thus, this project has an es-sential meaning not only for the company, but also for Poland and Poles. PGNiG has bought concessions allowing exploration and started nego-tiating cooperation with Chevron. The final agreement stated that both companies are to create a joint venture (jointly owned, 50% each). However, both companies had different aims while establishing this alliance. The main objective for PGNiG was to share costs and risks. Companies in the energy sector in the United States have much more experience with shale gas, as it is one of the major sources of natural gas in terms of gas volumes produced (U.S. Department of Energy, 2009). This was the main reason for choosing Chevron: PGNiG could learn from a more experienced international partner. As one of the members of the board said:

DPGNiG: “With establishing this relationship, PGNiG would gain a solid and experienced business partner (…), and we would be able to draw on Chevron’s global experience in shale gas exploration and pro-duction.”

In all of these alliances, the most important resource of the company is knowledge, and the major goals are to share knowledge and learn from the partners in order to increase company performance and innovative-ness. In this context, the alliances may be considered as entrepreneurial alliances for the partnering allies. At the same time, the managers face a huge challenge, which consists in ensuring safety of their own company, and maximising the value created in the process of cooperation with the partners. Besides the mentioned knowledge leakage, managers have to handle other, sometimes more extreme risks associated with the alli-ances.

PGNiG – Identified RisksBased on an analysis of the collected data, several major risks in PG-NiG’s alliances have been identified. Each of them has been described below:



Economic espionage Firstly, it is important to define competitive intelligence – it is the effect of gathering and analysing information, including e.g. information about customers, products or information related to any aspect of company operations. In other words, it means understanding the environment and everything happening around the company (Entrepreneur.com, 2015).

The difference between competitive intelligence and economic es-pionage is not clear. Scholars suggest that the boundaries are created by the law, but others argue that the boundaries between legal and illegal actions are blurred (Wright and Roy, 1999).

Economic espionage is strictly associated with knowledge leakage, but in this situation, the partner performs activities with the aim to steal information. Espionage could be defined in many ways. Galvin (2007) argues that it refers to an analysis of information (concerning the mar-ket, changes in the law system etc.), an analysis of the decisions of government institutions (that may affect the firm’s industry), and also forecasting based on the analysis in order to achieve competitive advan-tage (Galvin, 2007). The interviewee said that every company is practic-ing this tactic in order to be up-to-date every time.

DPGNiG: “This is not spying, we are following our competitors: their activity, news etc. to sustain our proactive strategy and respond to every environmental change as quick as it is possible.”

Espionage also refers to the process of purposefully obtaining infor-mation concerning trade secrets, patents, know-how and any other confidential data without permission of the owner, which may be inter-national in scope (Nasheri and Hedjeh, 2005).

During the cooperation the energy companies might obtain various information from their partners. Seven types of information were iden-tified based on interview analyses: • Information about the prices, discounts, terms of contract offered by

the partner to suppliers and other third parties;• Information about the partner‘s technology, know-how and patents;• Information about the capacity and potential of the partner’s plants;• Information about the vendors of the partner’s raw sources and ma-

terials;• Information about the partner’s sale strategy;• Information about the problems that the partner faces in different

markets.



All those types of information may be obtained informally from people working for the partner company, suppliers or major stakeholders. What is more, the source of information can also be secondary, raw data (e.g. stored in the company database). The data might be acquired and trans-formed into useful information using dedicated IT tools. An example of such a tool is Microsoft Upstream Reference Architecture (Hemps et al., 2003), created specifically for analysing data in the oil and gas industry.

Criminal competitive intelligence activities

This is one of the most extreme methods of espionage, which involves illegal and unethical behaviour. It could be breaking into senior execu-tives’ homes or offices to steal confidential information. Correspond-ingly, wiretapped phones or intercepting emails definitely breach the criminal law. This requires special skills. However, if such activity is spotted, the company breaching the law will lose its reputation forever. A manager working for Statoil, another international energy company in Poland, mentions the key IT-related risk for his organisation:

MSTATOIL2: “Its sensitive information, for example as part of a bid-ding process, to be disclosed by hacking. It is important to make sure that the systems are working correctly.”

Moles

This is a less invasive method of obtaining confidential information. According to statistics it is very likely to happen. While forming a joint venture, firms create a separate entity consisting of employees from both parent companies. One of the employees may be a spy, e.g. employed as a top manager in the partner company. Another way is to corrupt exist-ing employees in order to obtain valuable information.

DPGNiG: “This is one of the most neuralgic points in our company. We had many unpleasant situations when employees were spies. We are still developing our human resources management system, assessment centres as well as new control methods.”

2 Manager in STATOIL, Poland.



Rogue executives

A rogue executive might be placed very close to the management board; the highest possible level of the corporate structure in order to influence the company’s strategic decisions. By doing so, the company gets access to a wide range of the partner’s key information, and might also exploit the partner’s resources.

Insider threats and cybercrime

Companies mostly focus on threats coming from the external environ-ment. However, huge organisations like Shell, for example, employ 92,000 people (in 2014). Obviously, some of them are also potential threats to the company. In an alliance, employees – internals – are able to see, manipulate or share company data. Those activities are (despite less investigated) more common and could be equally damaging as ex-ternal threats. It is worth highlighting that protection against internal threats is not a priority of IT departments – monitoring and controlling every employee may cause conflicts between the management and em-ployees. Especially if trust and a friendly corporate culture are of major importance within the company.

DPGNiG: “Every door has its key to unlock. Thankfully, our techni-cians are one of the best professionals in the country, if not in Europe.”

Ernst & Young (2013; 2014) reported insider threats grouping them into three main categories: theft of intellectual property, sabotage and fraud. What is more, some of them might occur when the partner’s employees share confidential information (access passwords etc.) with someone else (e.g. a third party).

Over the past few years cybercrime in the energy sector has become popular news. In a response to such threats, companies invest more and more in IT security, but despite all of those efforts, they still suffer data loss.

This may especially hurt the oil and gas industry, where companies own remote land locations: offshore rigs, super tankers on the oceans. All of those units have to be connected with each other. E&Y (2014) reports that 61% of companies in the industry believe that they are unable to detect IT attacks. Cybercrime can come in a variety of types, but it is mostly about people who have different motivations and aims. For example, a group of hacktivists may seek to ruin the reputation



of a company. To illustrate that, in 2012 the international hacktivist collective Anonymous in their operation #OpSaveTheArctic exposed email addresses and passwords from oil companies, including industry giants like: Exxon Mobil, Shell, BP, Gazprom. Moreover, some cyber criminals may seek information in order to get money. They obtain giant amounts of analysed data and then convert it into money by selling it to other companies. This may lead to losses in sales, strategic partner hijacking, patent infringement, reduced return on R&D in-vestments and so on. One of the most remarkable examples took place on August 25th, 2012: a virus attacked the computer network of Saudi Aramco. According to reports it took two weeks to clean 30,000 com-puters from the virus. Its main function was to delete data from computer hard drives. It is worth mentioning that there were no oil spills, explosions or other extreme situations, but some very important information about drilling and production were lost (Bronk and Tikk-Ringas, 2013).

Reducing the Risks of Knowledge LeakagesMost of the described threats result in a loss of crucial information and knowledge leakages. As Shu et al. (2014) pointed out, protection against knowledge leakages, namely knowledge filters, might increase knowledge spillovers in entrepreneurial alliances. However, in order to avoid these leakages, companies use several methods and mechanisms.

First of all, companies always draw up a framework agreement to set the obligations of each party before they sign the partnership agree-ment. Before creating a final agreement, there is a negotiation phase. In this phase the companies discuss and agree on the future responsibilities and obligations of each party. This phase seems to be crucial for future cooperation.

DPGNiG: “Just after the negotiations we draft our letter of content. We set out the obligations and other responsibilities for each party. After that, we sign the principal and binding contract.”

The second key issue is the alliance management, as well as people who will work for the alliance. PGNiG conducts training for all employees in order to familiarise them with the possible restrictions in the process of sharing information. They are simply taught what they can and what they cannot say to a partner, or partners. Unfortu-



nately, it is not possible to prepare a written list or enumerative cata-logue of the information that they can use. Thus, the managers play a very important role in leading the employees and managing the al-liance activities. Based on a silent rule, after successfully establishing an alliance, the managers are transferred to the other one. The com-panies believe that they are able to conduct alliances successfully based on their managers’ experience. What is even more interesting, in the most important and crucial alliances (so called ‘fragile alliances’), the companies try to control the knowledge flows. In order to do so, they create a special entity called the ‘gate keeper’. The gatekeeper is a sep-arate, dedicated structure that answers every possible question of the managers in case of any problem deciding whether particular informa-tion may be shared.

One of the interviewed managers mentioned risk associated with the process of selling, or outsourcing a part of the partner’s business (e.g. one of the subsidiaries). In such a case, every party involved in the ten-der is obligated to sign a non-disclosure agreement (NDA) in order to protect confidential information. After signing the document, the subsidiary receives a Memorandum of Association, consisting of a finan-cial expertise, balance sheet and every other detail that describes the condition of the organisation. Moreover, it is impossible to reveal the details, because this might cause doubts about the firm’s economic con-dition. However, there is still a possibility that among the companies interested in buying a subsidiary, for example, there may be a ‘false’ company. Such a company might be registered in Luxembourg or Cyprus, for example, where the legal environment does not force to define a clear shareholder structure. Thus, the information collected by such a false company may be secretly transferred to its “parent company” and then used for their own purpose.

Taking into account that trust is a fundamental issue in alliances, the company tends to recruit only trustworthy and experienced employ-ees to its alliances.

DPGNiG: “Our companies train the staff in every aspect. We all know that they are the ones who create our company and we believe that the return on this investment is loyalty and trust.”

Experienced people have the knowledge about ‘how things are done around here’, they know the company, how it works, operates, and what kind of information is important and may be useful in alliances. The Human Resources Department is constantly monitored.



Thanks to the innovative initiative of managers a special place designed for strategic alliances, as well as for mergers and acquisitions (M&A), has been created in order to protect information and to avoid knowledge leak-ages. This place is called the ‘Data Room’. A data room is a place where companies participating in an alliance store their copies of all the confi-dential documents regarding the alliance. The documents cover all the important issues: financial, legal, business, concerning the history of the alliance, as well as future predictions. Every person entering this room needs to sign a confidentiality agreement (NDA). Interestingly, there are very strict rules describing how to behave, what partners may and may not do while being in there. The rules depend on earlier agreements between the partners. Usually, in the data room people are not allowed to write, take pictures or make movies. All behaviours leading to the possibility of recording anything in the room are strictly prohibited.

One of the interviewees explains his experience from a data room:DPGNiG: “I had the opportunity to be in a data room. We were

talking with Lotos Petrobaltic about our joint operations and alliances. We entered a big room, where the walls were made of glass, there were cameras everywhere as well as guards. I felt hemmed in, but we were sitting there for 5 hours with my friend from a competing company.”

The main objectives of such data rooms, which are often used in due diligence processes in other companies, are (duediligencedataroom.com):• Remove any concerns the potential alliance partners might have in

the company;• Disclose all the data required or requested;• Determine any potential costs;• Identify business trends that could be used to decrease the potential

value of shares; • Identify any potential opportunistic behaviour (for example, partner

might be seeking critical know-how in order to develop own projects);• At the end of the analyses, the data room governor must ensure that

everything has been erased. Data rooms have their disadvantage: it is impossible to erase a person’s memory about what he or she has seen and experienced in such a room.

Managerial practice shows that data rooms are a very effective method for every process when confidentiality of information is a major issue. In PGNiG, the creation of such a room is an example of manager initia-tive that has improved the security of alliances, as well as reduced the



risk of knowledge leakages in strategic partnerships. Thus, it may be considered as another corporate entrepreneurial action undertaken in existing alliances.

Questions1. Which key company resources can be acquired during cooperation

with a direct competitor?2. What methods and tools that help reduce knowledge leakages might

be useful in smaller firms? Do you think that the methods used in PGNiG are really effective?

3. What entrepreneurial actions can be undertaken by managers in order to establish and manage interfirm partnerships successfully?

4. What kind of cultural factors may affect the cooperation effective-ness within a strategic alliance?

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A. (2010). Entrepreneurship: Theory, Networks, History. Cheltenham: Edward Elgar Publishing.

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3. Hofstede G., Hofstede G.J. and Minkov M. (2010). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill Edu-cation.

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Chapter 8

Marcin Wardaszko, Kamil Szymański, Anna Pikos

Employing Gamification to Foster Corporate Entrepreneurship

Introduction

Motivating call centre employees is no doubt a challenging task, and one which seldom gives the desired effects. The case study analysis

included in this paper presents a description of the design and imple-mentation of a gamified model of work, based on a quite easily imple-mentable and low-cost mechanism. The system focuses on motivating employees to perform better in sales through improving the working atmosphere and team building. Gamification, as an innovative method for building employee engagement, creates a culture that fosters corpo-rate entrepreneurship. The article describes the design, the implementa-tion, and the assessment of such a system, implemented for a group of a few hundred employees of one of the biggest call centres in Poland.

Corporate EntrepreneurshipThe dynamic environment forces businesses to nurture their entrepre-neurial environment in order to grow and survive (Bolton and Lane, 2012). Therefore, they should find factors that increase corporate entre-preneurial performance (Barrett, Balloun and Weinstein, 2012). Cor-porate entrepreneurship is not an isolated factor but a combined set of firm-level behaviours (Zahra, 1996).

172 Marcin Wardaszko, Kamil Szymański, Anna Pikos


In the literature there is no single agreed definition of ‘corporate entrepreneurship’ (Sharma and Chrisman, 1999), although it is charac-terised by (Wyk and Adonisi, 2012):• the birth of new businesses within existing businesses; • the transformation or rebirth of organisations through a renewal of

the key areas of business; • innovation and renewal within an existing organisation.

Table 1. Corporate entrepreneurship definitions

Author/s & Yr. Definition suggested

Burgelman (1983, p. 1349)

Corporate entrepreneurship refers to the process whereby the firms engage in diversification through internal development. Such diversification requires new resource combinations to extent the firm’s activities in areas unrelated, or mar-ginally related to its current domain of competence and corresponding oppor-tunity set.

Chung and Gibbons (1997, p. 14)

Corporate entrepreneurship is an organisational process for transforming indi-vidual ideas into collective actions through the management of uncertainties.

Guth and Ginsberg (1990, p. 5)

Corporate entrepreneurship encompasses two types of phenomena and the processes surrounding them: (1) the birth of new businesses within existing organisations, i.e. internal innovation or venturing; and (2) the transformation of organisations through renewal of the key ideas on which they are built, i.e. strategic renewal.

Jennings and Lumpkin (1989, p. 489)

Corporate entrepreneurship is defined as the extent to which new products and/or new markets are developed An organisation is entrepreneurial if it develops a higher than average number of new products and/or new markets.

Spann, Adams and Wortman (1988, p. 149)

Corporate entrepreneurship is the establishment of a separate corporate organi-sation (often in the form of a profit centre, strategic business unit, division, or subsidiary) to introduce a new product, serve or create a new market, or utilise a new technology.

Vesper (1984, p. 295) Corporate entrepreneurship involves employee initiative from below in the organisation to undertake something new. An innovation which is created by subordinate without being asked, expected or perhaps even given permission by higher management to do so.

Zahra (1993, p. 321) Corporate entrepreneurship is a process of organisational renewal that has two distinct but related dimensions: innovation and venturing, and strategic renewal.

Zahra (1995, p. 227; 1996, p. 1715)

Corporate entrepreneurship – the sum of a company’s innovation, renewal, and venturing efforts. Innovation involves creating and introducing products, pro-duction processes, and organisational systems. Renewal means revitalising the company’s operations by changing the scope for its business, its competitive approaches or both. It also means building or acquiring new capabilities and then creatively leveraging them to add value shareholders. Venturing means that the firm will enter new businesses by expanding operations in existent or new markets.

Source: Sharma and Chrisman (2007, p. 86–88).

173Employing Gamification to Foster Corporate Entrepreneurship


We present some definitions of corporate entrepreneurship in Table 1. The proposed definitions stress that corporate entrepreneur-ship is a process of organisational renewal that builds new capabilities. In order to start this strategic renewal process the company needs to change its internal attitude towards employee initiatives and ideas. One of the ways to build such an environment is gamification. First of all, gamification directly affects employee commitment by increas-ing their perception of control over the environment and their fate. Second, gamification creates a space for employees to develop new ideas.

According to Cuervo, Ribeiro and Roig (2007): ‘Corporate entrepre-neurs must reinvent the firm on a daily basis, creating new enterprise (spin-offs) and developing company networks’. It is about exploring new opportunities by innovating, venturing and renewing (Zahra, 1996). It entails the ability to compete, adapt and perform in increasingly turbu-lent environments (Heavey and Simsek, 2013). The management should use different mechanisms to facilitate intrapreneurial prospects in an organisation (Goodale et al., 2011).

The first step to creating space for corporate entrepreneurship is creating a culture of trust and a sense of control for the employees. One of the ways to create such an organisational culture and sense of control over the fate and work environment of the employees is gamification. Gamification through game-like mechanics builds up trust and a sense of control. Moreover, it is an innovative way in which companies build employee engagement that is also essential for the development of cor-porate entrepreneurship.

GamificationAccording to Aon Hewitt, the level of employee engagement among employees in Europe reaches 57%, and the generation of the Millen-nials (people born after 1980) turns out to be the least engaged group of workforce since the trends in global employee engagement started being investigated (AON). Each non-engaged employee costs a com-pany an amount of PLN 29,000.00 per year on average (HRM partners S.A., 2013). Engaged employees (HRM partners S.A., 2013):• Talk about their job with pride 10 times more often;• Recommend their company as an employer 10 times more often;



• Are 8 times more willing to get involved in the process of change implementation;

• Achieve organisational objectives 8 times more often.

Therefore we are dealing with a crisis which causes enterprises to lose hundreds of thousands of zlotys. One of the methods that is able to increase the level of employee engagement even up to 95% is gamifica-tion (Column, 2013). Gamification involves a conscious and intentional application of mechanisms and techniques used in game design to in-crease the level of employee engagement and loyalty, as well as to mod-ify human habits and behaviour. Thus, it is fully understandable that companies across the whole world – including Poland since recently – are beginning to turn to gamification in search for a method to support and streamline their operations.

According to Zichermann and Cunningham (2012, p. 9) gamification is ‘the process of game-thinking and game mechanics to engage users and solve problems’.

One of the biggest websites dealing with the topic of gamification – badgeville.com, defines it as ‘the concept of applying game mechanics and game design techniques to engage and motivate people to achieve their goals’.

Regardless of the definition, gamification is a model based on video game mechanics, which makes it possible to design the ‘gaming’ envi-ronment – including the organisational setting – in a way to make it more engaging for its users. In order to understand these mechanics better, we should first answer the following question: why do people play games? In other words, what motivates people to play games? Reeves (2009, p. 27–29) indicates five main reasons behind this motivation:1. Achievement – players motivated by the desire for a sense of achieve-

ment are interested in prizes and gaining more and more power within the game they play. They enjoy collecting ‘trophies’, badges, and virtual artefacts. They want to see their names at the top of the leaderboard and, in general, prefer games which give them a chance to gain a big advantage over other players. They are motivated by clearly defined goals.

2. Immersion – in MMO-type (massively multiplayer online) games, players play the role of a character selected to achieve certain objec-tives. This boosts their creativity and lets them ‘immerse’ themselves in the virtual reality. Players motivated by ‘immersion’ are able to



play the same game a couple of times only to experience the virtual world from the perspective of a different character. They are the addressees of complex game scenarios and multi-layer solutions.

3. Exploration – in the real world, players motivated by exploration tend to be around people motivated by exploring the complexities of their work. They follow the same pattern in the games they play. They are interested in exploring new possibilities and new solutions.

4. Competition – the most obvious type of social motivation is com-petition. It is clear to everyone, even to a new player, that points, levels, badges, and prizes differentiate winners from losers. Many tend to play only to win. Competition is a social phenomenon because the process involves at least two players. Yet, it is also true that play-ers motivated by competition often tend to get angry, aggressive, or easily irritated. That is why in order to win, they may even go as far as to lie or cheat (within the game setting only, of course).

5. Company – looking for friends is a very important social mechanism. Since games often require cooperation, many in-game activities make it possible to establish closer relationships between players. People motivated by this social aspect like to extend their networks of con-tacts by sharing information about themselves, but expect the same in return.

The basic typology for dividing players in terms of game mechanics is the model developed by Bartle (1996). The researcher divided players according to their preference for competition and cooperation. The second line divides players with respect to orientation to people vs. orientation to the game environment. In the light of the above, we have 4 types of players (Zichermann and Cunningham, 2012, p. 33); see Figure 1:• Explorer – explorers are players who take part in a game to explore

the environment and the possibilities it offers. They are not neces-sarily interested in scoring and competing with other players. They are mostly motivated by exploring new in-game opportunities or places, objects, etc.

• Achiever – this type of player is geared towards competing and win-ning. Scoring is the main driver behind the gameplay. Such players are interested in scoring high in leaderboards, halls of fame, and other types of platforms offering the opportunity to compare their score with that of other players. A significant challenge in designing games



for achievers is to keep them interested in the gameplay if they actu-ally do not manage to win.

• Socialisers – this is the most common type of players. Socialisers play to form relationships and shape their image in a group. They do pay some attention to winning, but for them the gaming environment is a platform to establish closer relations in the real world.

• Killers – in terms of winning, killers are very similar to achievers. Yet, apart from their interest in victory, they also want others to lose.

Figure 1. Bartle s player types

Source: Zichermann and Cunningham (2012, p. 32).

The abovementioned division should also be supplemented with the main motivators that drive players to play, which were proposed by Yee (2015), based on his research. The outcome of Yee’s (2015) research carried out among over 40,000 gamers let him define and classify the main motivators in MMORPG (massively multiplayer online role-play-ing games). His model is presented and described in brief below.

Table 2 shows the distribution of the different types of player motiva-tors in certain groups. In order to explain the whole idea in a bit more detail, we would like to provide a brief description of each of the 10 motivators proposed by the researcher.

Acting

Interacting

Environment

People

Achievers

ExplorersSocialisers

Killers



Table 2. Types of player motivators

Achievement Social Immersion

Advancement:Progress, Power, Accumulation, Status

Socialising:Casual Chat, Helping Others,Making Friends

Discovery:Exploration, Lore,Finding Hidden Things

Mechanics:Numbers, Optimisation,Templating, Analysis

Relationship:Personal, Self-Disclosure,Find and Give Support

Role-Playing:Story Line, Character History,Roles, Fantasy

Competition:Challenging Others,Provocation, Domination

Teamwork:Collaboration, Groups,Group Achievements

Customisation:Appearances, Accessories,Style, Colour Schemes

Escapism:Relax, Escape from RL,Avoid RL Problems

Source: Yee (2015).

The Achievement Component:• Advancement – Players motivated by progress gain a high level of

satisfaction when they achieve their objectives quickly. Their main desire is to progress constantly and collect as much in-game resources as possible. They are keen on getting involved in different types of tasks bringing them closer to power and establishing their position. They are usually not afraid of difficult tasks and pursue them without hesitation if they bring them closer to their goals.

• Mechanics – Players motivated by game mechanics derive satisfaction from analysing and understanding the rules governing the game world. They are able to compare and select those in-game tools that can provide them with the most benefits. Their goal is to understand and optimise the system, as well as to model their characters by de-veloping a certain set of skills.

• Competition – Competition-motivated players aim to compete with others. They enjoy contests, playing ‘by the book’, but also against the rules. They play to win and dominate.

The Social Component:• Socialising – Players that feel good in this area like to meet and get

to know other players. They enjoy gossiping and ‘small talking’ with other players, and are keen on offering help to others.



• Relationship – Players who like forming bonds search for stable, last-ing and deep friendships. They do not mind talking about everyday life. They often ‘transfer’ their virtual friendships to the real world.

• Teamwork – Players who enjoy teamwork feel good in environments requiring cooperation. They are more proud of group achievements than of their own achievements.

The Immersion Component:• Discovery – Players who are motivated by exploration like exploring

the game world, collecting and discovering new places and items. In in-game worlds, they enjoy visiting new places and collecting infor-mation about new things, and act in a similar way in the real world.

• Role-Playing – Players who enjoy role-playing like to immerse them-selves in the back story of the character they play and develop. They usually spend their time on studying and tracing back the past of their character. This type of player wants to create the in-game real-ity by means of the input of their character.

• Customisation – Players who feel good in adapting their characters pay a lot of attention to making their characters unique. They ap-preciate a big range of possibilities when it comes to both their char-acters and the gaming environment.

• Escapism – Players-escapists see the in-game environment as a place where they can relax and reduce the level of stress originating from the real world.

The abovementioned theory of flow, types of prizes, types of players and player motivators are the key elements that need to be understood to be able to design a game world. In order to design a gamification environment well, the designer-creator should abide by rules that enable players to follow and proceed with all of the elements of the process successfully.

Motivating Call Centre Employees by Means of GamificationThe application of the methodology of gamification to create an entre-preneurial corporate culture and to improve the effectiveness in call centres across the world has been put into practice already in a number



of cases. An interesting original form of this concept has been designed and implemented in one of the biggest call centres in Poland. The de-partment is part of a large international bank and it is composed of several teams of 15 members, all responsible for making outgoing calls and selling additional products to current clients.

AssumptionsThe company’s management decided to apply gamification in order to improve the level of employee effectiveness, engagement and entrepre-neurship attitude. The idea was to make the applied solutions low-cost and easy to implement, without the need to use any additional software.

The following business objectives were formulated:• to increase the extent of use of electronic channels of sales;• to increase the number of sold products;• to support the process of distribution and performance in a very

dynamic environment;• to change the atmosphere in the workplace to foster entrepreneurial

spirit.

The programme was planned for a period of 3 weeks. It aimed to bring improvement in the four aforementioned areas, as well as to work out the best practices that could be used later on to increase the effectiveness of the sales teams even further. The project was scheduled for such a short period of time for two reasons. The first was the amount of budget allocated for the project (below PLN 100 per one employee), and the second – no previous experience of the sales force with such kind of activities (which led to a risk of rejection and disap-proval of the initiative). A challenge to be faced in the project was a very uneven level of involvement of the sales force, and a very uneven level of sales overall. Past experience proved that the application of traditional methods of motivation, such as competitions where only the best employee could win, or awarding top-ranked employees in certain categories, fails to motivate people so the chances to achieve the expected results were very low. Competitions motivate only a few percent of those at the top of the ranking lists – because they know they have a chance to win, as well as a few percent of those at the bot-tom – because they, in turn, do not want to be last. They do not affect



the majority of participants, who score averagely and are ranked more or less in the middle of the list.

The stages of development of gamificationThe aforementioned objectives served as a basis for the construction of the whole system. Next, a model for measuring the achievement of the objectives was developed. In the case of the first two objectives, the results were measured by means of sales reports, and the rest objective could be measured by means of observations only.

Players

All call centre employees contacting the clients of the company directly were players in the system. In order to integrate the participants into the game, and to promote a better distribution and the achievement of the objectives, the players were divided into teams of 5 – all with the same sales potential. The allocation of individuals to particular teams was based on the sum of sales results from the last 3 months. Another reason for dividing the sales force into teams was the intention to move away from individual competition for the sake of team competition, which promotes a culture of support and sharing knowledge with each other.

Rules

Two types of activities required to achieve the said objectives were de-fined. The first type involved signing a document similar to a preliminary contract with a client, and the second – signing the actual final agree-ment. Both of these activities were defined as activities awarded with points as part of the game system. In order to make their assessment easier, an average value of the contract or the number of any point-awarding transaction were established. The teams were also able to gain additional points for exceeding the limits of sales counted as the sales volume. It was possible to either credit every point credited towards the overall number of points of a given team, or to exchange it for a coin toss; if the coin toss was successful, three points were awarded, but if it was unsuccessful, the point was lost. The points were to be collected



individually, but it was only possible to win as a team. The game took 3 weeks, and involved ‘small’ to ‘epic’ victories, divided into daily, weekly, and ultimate. The collected points and the obtained results were summed up and settled daily, after the workday.

System of awards

Because of the very low budget, the material awards were limited to low-value every-day-use items, and the overall system of awards was designed according to the SAPS methodology described below (Zicher-mann, Cunningham, Jońca, 2012, pp. 23–24):

S – status

The pool of awards included ‘concierge services’. The person who won a special ticket could ask for a cup of coffee/tea, or a candy bar. The person was served by one of the managers, but the prize-winner did not know who they would be served by until the service was delivered. Apart from that, there was also a ‘Leaderboard’ – introduced as a traditional mechanism to emphasise one’s status.

A – access

By succeeding in randomly assigned in-game missions (e.g. selling the highest number of a certain product on a given day), the player gained access to a special pool of prizes (of the same value as the basic prizes, but available only in that special pool).

P – power

Each team from among the several dozens of the 5-member teams formed for the needs of gamification had to choose its leader and its name by means of voting. The leader was to decide on the division of the awards/prizes won on a given day, and whether the person gaining a point may exchange that point for a coin toss. The leader was also the only person who could communicate with the sales support staff man-aging the game.

S – stuff

The range of material awards included pens, cups, cinema tickets, mem-ory sticks (items worth PLN 1.00–25.00).



The scenario

Effective gamification scenarios are ones that move their participants emotionally. These include any types of sports scenarios, as well as sce-narios involving a conflict, well-known cinema and book stories (Camp-bell, Jankowski, 2013). Since in this case the game involved an interplay of many small teams headed by leaders, the scenario immersed the players in a world of small villages, each with a great ‘chief’ in charge, fighting for the reign over dependent lands, and striving to expand their hegemony. Actually, this setting took advantage of the natural competi-tion between the teams operating in different cities of Poland.

Technical factors

The technical factors that needed to be taken into consideration were mainly the means of distribution of the results, the information, and the construction of the game setting – within the same scope for each location of the gameplay. For the abovementioned cost-related reasons, developing an own gamification platform was not possible. Therefore, the environment of the game was created by means of hanging posters in the halls, setting appropriate wallpapers, and sending e-mails with interesting information, updated results, and events taking place in the in-game world – provided with appropriately-themed photos and graph-ics – in the course of the whole gameplay.

Communication with players

Communication with the players was based on e-mails, a scoreboard (sent 2 times a day), information revealing the game world (sent 2 times a day), and contacts between the staff managing the game and the team leaders.

There was a concern that those tools would not make it possible for the game participants to get fully immersed in the game. It turned out, however, that the adopted means were sufficient, and that after a few days of gameplay the players took the initiative to expand this setting like in an RPG game through their overall attitude, and the e-mails and messages they exchanged with each other. Another significant factor that had to be taken into account was the mechanism responsible for obtaining information within the scope of conformity between the



number of points in the game and the events/activities they were awarded for (product sales). System reports were generated with a day of delay, so it was difficult to provide instant and comprehensive feedback, which is, after all, one of the fundamentals of gamification (Herger, 2014), which posed a threat to the possibility of achieving the expected results. Hence, the results were collected and the game world was managed by the sales support staff.

Implementation OutcomesAfter a 3-week period of gameplay, the increase in the level of particular factors exceeded the initial assumptions and expectations. A short de-scription of the results characterised by both measurable indicators (sales volumes) and observations is provided below:• The extent of use of online channels increased by 250%;• The level of overall sales increased on average by approx. 12–19%,

depending on the type of product.

An additional benefit of this solution was a noticeable growth of the level of responsibility of the team leaders, and their increased readiness to help the management with introducing many important changes later on. Moreover, it was also the team leaders (although usually people with an above-average performance were selected for this role) who achieved the highest average improvement of results. The influence of the team leaders on the team members turned out to be significant as well. Based on observations, it was found that in teams with more active and involved team leaders, the team members tended to be more willing to stay after hours out of their own free will. The difference between the result growth rates of the team with the most active leader compared to the team with the least active leader (in the course of the project) was eightfold. Fur-thermore, the increased employee engagement, the proactive attitude of the teams and their leaders allowed strengthening the entrepreneur-ial culture within the company.

The average length of the log-on time also increased (+4% in an 8-hour work cycle); so did the total time of phone conversations (+11%), which meant that employees stayed at work longer to get more involved in making phone calls. Another effect that had not been planned, but rather expected, was a noticeable growth in the level of knowledge shar-



ing among the employees. A later analysis proved that many players had different sources of motivation to help others. At the level of a small group it was easier for them to find the right social motivation to help others, and the pressure of the group was also stronger. Those who strived for victory, in turn, had to support other team members because victory could only be achieved as a team.

The short-term return on investment was approx. 400%, with each PLN 100.00 invested into the project generating PLN 400.00 in the course of the gameplay, which resulted from the profit margin gained on additionally sold products in the amount specified above. Interest-ingly enough, the long-term effects lasted even 4 months after the process came to an end.

The analysis described above shows that an effective gamification granting a good return on investment can be designed even with low capital expenditure, which makes it possible to undertake actions ad-dressing the most urgent issues in a matter of a few days, but also to test the effectiveness of different types of systems. Moreover, we can also see that gamification creates entrepreneurship in the workplace by building employee commitment to the development of the company.

Questions1. What business objectives does the company have for this project?2. Describe the target group of the gamification project. How did it

influence the design of the gamified system.4. What target behaviour does the company want to achieve with this

system?5. Name other ways of using the mechanisms of gamification to support

the development of corporate entrepreneurship within a company.

Recommended Readings1. Cunningham C. and Zichermann G. (2011). Gamification by Design.

Sebastopol, CA: O’Reilly Media Inc.2. McGonigal J. (2011). Reality is broken. New York: Penguin Books.3. Read J.L. and Reeves B. (2009). Total engagement: Using games and

virtual worlds to change the way people work and business compete. Cambridge, MA: Harvard University Press.



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Notes about the Authors

Mateusz Bodio – fourth-year student of Law and graduate of Man-agement at the Kozminski University. His interests include strategic management and the internationalisation of enterprises. His hobbies revolve around sports: Krav Maga, kite surfing, the gym.

Mariola Ciszewska-Mlinarič – Assistant Professor of Strategic Management and International Business Strategy at the Kozminski University, Visiting Professor at universities in France and Austria. Her research interests revolve around the topic of strategy, decision making, adaptive capabilities, and the internationalisation of emerging market firms. She has published a number of papers, articles and co-authored two monographs. At present she is working on her habilitation in the area of international business strategy. Mariola is also an experienced management consultant, specialising in strategy development and the implementation of performance management systems. Over the years, she took part in a number of consulting projects in different business settings, ranging from leading energy companies to non-profit organisa-tions such as museums.

Łukasz Czarnecki – second-year student, Master in Management (Marketing Management). His interests are: sports – running (he com-pleted 2 full marathons – 42 km – with only a 2-week gap between them), biking, swimming; finance – saving, investing; and videogames – from shooter to strategy games.

Yaryna Drobatyuk – second-year student of the Master in Manage-ment programme, specialisation – International Strategic Management, at the Kozminski University. Besides studying, currently Yaryna is the

188 Exploring entrepreneurship. Inspirations from the field


owner of a small business, and she is a professional ballroom dancer. The implementation of different skills allows her to look for atypical solutions, thus she is interested in innovative ways of problem-solving and their implementation in business ventures. Her research interests revolve around strategic management intervention, innovation, network-ing and entrepreneurship.

Monika Golonka – works at the Management Department of the Kozminski University. She is interested in contemporary management, the evolution of management, uncertainty, change and innovations.

Svetlana Gudkova – Assistant Professor and the Chair of Manage-ment at the Kozminski University. She is the Head of the Kozminski International Business School and the Rector’s Proxy for the Internal Quality Assurance System. Her research interests include transfer of intangible assets in multigenerational family businesses and quality as-surance in institutions of higher education. Svetlana Gudkova is the originator and content coordinator of the project “Academy of Entrepre-neurship: Get inspired!”

Maryna Hrynivetska – the last year student of the Bachelor in Administration program in Koźmiński University.

Karolina Kochman – received her Double Master’s Degree in In-ternational Strategic Management in 2015 from the Kozminski Univer-sity in Warsaw, Poland, and the University of Bradford, UK. Her grad-uate research interests revolve around the Indian market and its unique characteristics, especially with regard to market entry strategies and entry barriers. Before coming to the Kozminski University she worked for the start-up incubator Rocket Internet as the International Business Development Manager in Singapore until 2013. In 2015 she co-founded Trendset Lab, a Warsaw-based company focused on developing innova-tive projects and technologies.

Artem Kovtun – first-year Master student at the Kozminski Uni-versity – Management in the Virtual Environment. Before studying at the KU, he got his Master’s degree in Ukraine at the Kyiv National Economic University – Government Finance. At that time he became the co-founder of a local courier company “JIT”. Artem’s field of interest

189Notes about the Authors


is “The financial activity of the Central Bank: quantitative easing and its effect on the main financial aggregates”. This topic will hopefully be developed during his PhD.

Aleksander Maziarz – Adjunct Professor at the Kozminski Univer-sity and attorney at law. Specialises in public economic law, in particu-lar competition law and public utility. Author of nearly 40 scientific publications.

Anna Pikos – Assistant Professor at the Department of Management. She researches and publishes in the fields of risk management process and public sector management.

Krzysztof Szadkowski – owner of Motortest, a company that spe-cialises in selling cars to local buyers and exporting cars to foreign markets. He graduated from the Kozminski University in Warsaw, Po-land, in 2015 with a Double Master’s Degree in International Strategic Management, run jointly with the University of Bradford, UK. Before Kozminski he studied Logistics at the Stenden University of Applied Sciences in Emmen, Netherlands, and his Bachelor degree he received at the Academy of Finance in Risk Management (2013).

Kamil Szymański – second-year student of the Master in Econom-ics programme, specialising in the international business environment. He is interested in sales, gamification and change management. The main area that he explores in his research and professional work are methods of increasing the productivity of sellers.

Simona Todorova – second-year student of the Master in Manage-ment programme, with the specialisation – International Strategic Management, at the Kozminski University. Her research interests revolve around strategic management and business development strategies for start-ups and small to medium-sized companies. In particular, strategies to overcome entry barriers, gaining competitive advantage, brand build-ing and consumer behaviour analysis. On a personal level, Simona is interested in supporting sustainable business models and helping entre-preneurs develop their ventures. Currently she is volunteering for an NGO, which focuses on providing guidance to entrepreneurs in Africa on how to grow their business.

190 Exploring entrepreneurship. Inspirations from the field


Anastasiya Tsyrulnykova – student of the BA in Management programme at the Kozminski University, with the specialisation Entre-preneurship. Her personal interests include: psychology, social rights and equality, foreign languages, modern Ukrainian literature.

Marcin Wardaszko – Assistant Professor at the Department of Qualitative Methods and Information Technology, Director of the Cen-tre for Simulation Games and Gamification. He specialises in economy and managerial simulation games. He is a trainer and designer of simu-lation games for business and consulting.

Dominika Wojtowicz – Assistant Professor in the Sustainable Development Centre of the Department of Economics at the Kozminski University. Graduate of Management Studies at the Kozminski Univer-sity and of European Studies at the Warsaw University. She has held research fellowships at the Faculty of Political Sciences of the University of Siena (Italy) and at the Faculty of Management of the Technical University of Cartagena (Spain). Her research interests focus on man-agement in the public sector, the effectiveness of public policies and interventions aimed at strengthening regional and local development. She is the coordinator of several research projects.



EXPLORING EntrepreneurshipInspirations from the Field

Exploring Entrepreneurship represents a wel-come addition to the field of international entrepreneurship education. The various chapters in this anthology have something for everyone interested in entrepreneurship education. The book seamlessly integrates entrepreneurship theory with practices from the “field” such as case studies, consulting projects, and interviews with entrepreneurs. Kudos to the Kozminski University students and their professors!

Prof. Patricia Sanders, Ph.D., President Emeritus and Professor

of Entrepreneurship, Post University

Exploring Entrepreneurship is a truly unique and in-teresting volume. The book addresses new issues and phenomena that entrepreneurship has to face these days, including the technological challenges (such as botnet attacks), the social entrepreneurship, or gamifi-cation. I highly recommend this timely publication to all researchers interested in the topic. Additionally, it may serve as a useful resource for all those, who teach en-trepreneurship: by linking theory with hands-on case studies, as well as problem questions and discussions, it is a great teaching companion.

Prof. Dariusz Jemielniak, Ph.D., Head of New Research on Digital Society (NeRDS)

group at Kozminski University, Berkman Center for Internet and Society (Harvard University)



Project co-financed by the European Union under the European Social Fund

ISBN 978-8389437-64-8

exploring entrepreneurship. inspiration from the field

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