The role of corporations in economic development: Albania on its way to internationalisation

Abstract

Albania's inward-oriented economy gradually opened to global influences during its period of transition. This eased access to markets and capital but also revealed many weaknesses in Albanian corporations. Today the country's growth strategy is based on exports. Consequently, a strong and competitive corporate sector with international potential is vital. Following the evolutionary approach in corporate governance theory, we examine internal organisation of the firm, relationships between stakeholders and Albania's historical legacy (path dependency), linking these characteristics with competitiveness and export orientation. Cluster analysis reveals two distinct groups, where cooperation between agents and human capital investment, as well as productivity and export orientation, differ significantly. In terms of development policy, the results are very important for Albania and similar countries. Beside a unique dataset, the article also introduces methodological innovations in the survey technique and represents a contribution to the literature on intangible capital.

Acknowledgements

This research benefited from the following grants: The role of intangible capital for economic growth and restructuring in the Western Balkan countries and Slovenia (grant no. BI-AL/10-11-004), The influence of ownership and employee participation in equity, profit and management on economic performance of firms in countries of former Yugoslavia (grant no. J5-2227) and Analysis of firm-level investment in tangible and intangible capital from the perspective of future competitive advantages of Slovenian firms (grant no. J5-4169).

Notes

 1. The term blockholding (or blockholders) is commonly used in managerial economics literature, dealing primarily with the problems arising from more/less concentrated ownership and agency problems (see Holderness 2003). Blockholding refers to a situation of having large owners present, where the limits for what is large are set differently. For example, Demsetz and Lehn (1985) suggest using the largest 5–20 shareholders, while Shleifer and Vishny (1986) suggest a 5% limit (in Earle et al. 2005). The notion of a block refers primarily to the ‘power to impact’; therefore the definition can differ by country (institutional characteristics) or industry. The type, size and number of blockholders all matter for firm structure, strategy and long-run performance (see Tribo et al. 2007, Sanchez-Ballesta and Garcia-Meca 2007, Henrekson and Jakobsson 2012).

 2. Under the former, the expertise in the protected industries would eventually grow to the point where the country would have a comparative advantage in free trade. Under the latter, manipulation through taxes and subsidies for terms of trade facing the country's producers could bring an increase in growth and welfare improvements in the free trade equilibrium. To execute both strategies it is essential for large companies to exercise learning by doing.

 3. Psychometric questionnaires are most commonly used in psychology to research human psychological behaviour (i.e. Sixteen Personality Factor Questionnaire (Cattell 1946)), frequently with the help of factor analysis, in order to find latent behavioural traits i.e. finding social value structures. For more see Musek (1993).

 4. A combination of closed questions directs respondents to a systematic way of thinking about the actual situation in the organisation without being biased or thinking too broadly about it. See Bloom and Van Rennen (2010b) for an alternative view.

 5. To test the validity of results we used different distance measures and agglomerative techniques. Using Jaccard, Dice and Russel/Rao measures (Finch 2005) we got similar results as with simple matching, but simple matching produced the most significantly different clusters, tested with Pearson's Chi-square. We also tried other agglomerative methods, such as single, average and complete linkage but we encountered a problem with chaining, which is a common occurrence when clustering dichotomous variables. Performing clustering on sub-samples provided reliability testing. This was inconclusive in some cases owing to sample size limitation. Otherwise we found similar solutions to the whole sample clustering.

 6. Given the structure of the questionnaire and taking into account the characteristics of Albanian corporate ownership, the blockholding limit was set at 50% of the company.

 7. Productivity was measured as value added per employee, which was dichotomised. Firms with value added per employee less than or equal to the sample median were given value 0 and firms with value added per employee higher than the median were given value 1.

 8. The Albanian labour legislation has evolved throughout the transition period and in many ways it emulates International Labour Organisation (ILO) standards and provides a relevant basis for the protection of employee rights and well-being. The new Labour code was adopted in 1995, amended later in 1995 and 2004. Some other important provisions are stipulated in the Law on employment promotion, which was adopted in 2006, the amended health and safety law adopted in 2010 and ratification of several ILO conventions (ICGL 2011).

 9. Collective agreement contracts exist at national and regional level for separate industries but more as an exception than a rule. These agreements are formed between the representative union branch (sometimes a federation agreement between two of the biggest unions is made) on the one side and business associations on the other. These contracts determine the minimum wage, compensation for lay-offs, overtime hourly wage rates, the length of contract validity and freedom of union activity, on a general level. In addition, administrative and public enterprises that have been privatised and remained a monopoly (i.e. the energy sector) are not included in these contracts but bargain individually with unions and the government.

10. After the fall of the socialist regime in Albania in 1991, two bigger unions were formed: Konfederata e Sindikatave të Shqipërisë (KSSH) (Albanian Trade Union Confederation), as the successor of the Communist Professional Union, founded on 5 June 1991, which is politically more affiliated to the Socialist Party, and Bashkimi i Sindikatave të Pavarura të Shqipërisë (BSPSH) (The Union of Albanian Independent Syndicates), which was initially founded as a political opposite to the communist regime (11 March 1991) and is therefore more affiliated with the Democratic Party. Beside these two main unions, there is another smaller one: Federata Sindikale e Tregtisë, Bankave dhe Shërbimeve (FSTBSH) (The Union Federation of Trade, Banks and Services).

11. In contrast to transformational, transactional relationships refer to the type of management where workers are notified about what is expected of them and what is the compensation for this. If this is not achieved, actions can be taken. Consequently, such an approach can lead to mediocracy, since action is often taken only if goals are not met. Transformational managements attempt to raise motivation, cooperation and striving towards reaching the goal. Leaders often try to inspire and motivate team work and cooperation (Bass 1990).

12. Although the Labour Law regulates labour relations well, it is commonly violated by employers (e.g. paying social security and other social benefits). The European Commission demands many improvements in the national legislation and laws regulating labour relations. The laws, which regulate rights of workers’ representation in the firm as defined by EU directives, are specifically in focus.

13. In comparison with Slovenia and the Republic of Srpska, the mean Albanian firm exports substantially less, since the mean Slovenian manufacturing firm and the mean Republic of Srpska firm exported around two-thirds and one-third of revenue in 2009, (Koman et al. 2010, Prasnikar et al. 2012b).