ABSTRACT

The objectives of the research are to analyse the main features of small businesses of South and West Hungary, to identify the main tendencies of their operation and development and to determine the main motivating factors in their business management processes. The area under examination covers rural county Zala, rural county Somogy, and the settlements located by the Western shore of lake Balaton. The main findings: the fast increase in the number of the small and medium size enterprises is due to the loss of the employment possibilities, the inclination and resources of vocationally trained workers to establish their own businesses including family traditions, the desire to achieve tax reduction and income maximisation, and higher incomes. Difficulties are caused by the lack of available capital. Enterprises not turning back part of their gains into the business cannot provide sufficient income for the family.

Key words: small enterprise, capital resource, human resource, South-West Hungary


INTRODUCTION

The objectives of the research are to analyse the main features of small businesses working in the small towns and villages of South and West Hungary, to identify the main tendencies of their operation and development being either similar to, or different from the national averages in Hungary, and to determine the main motivating factors in their business management processes. Similar research results were published in the early 1990's (Czakó et al., 1995; Czakó, 1997; Gábor, 1994). The present study focuses on the main features and tendencies of the situation at the end of the 90's in West and South Hungary. The area under examination comprises three sub-regions: rural county Zala, rural county Somogy, and the settlements located by the lake shore, in the Western basin of lake Balaton. Within the latter, the two towns Keszthely and Héviz were analysed separately from the other villages.


MATERIALS AND METHODS

The remarkable increase in the number of the small and medium size enterprises is considered an important feature of the Hungarian social and economic transformation process, by the social scientists and economists. (Within the Hungarian national economic accounts the expression "sole proprietorship" is used for retail shops, small scale manufacturers, private intellectuals, professionals who are self employed. Partnerships are - in agreement with the international usage - the small business organisations having legal entity. When small and medium size enterprises are mentioned in this paper, the term refers to the sole proprietorships and the partnerships working with not more than 50 employees.)
In the second half of the 90's the number of the small and medium size enterprises in Hungary was approximately 1 million. Their structure is uneven, disproportionate, the majority of them are micro-businesses, that is, family enterprises of 2-3 persons. Some researchers (Kovách, 1995; Szelényi, 1990) say, that to establish a market economy in Hungary the increase in the number of private businesses and the enlargement of the so-called middle class is necessary. According to the above researchers the future members of this middle class would be the present private entrepreneurs ad small business owners. Others question the above statements, and relying on the fast increase in the number of the enterprises, and on their social stratification, doubt that they are all really entrepreneurs in the true economic meaning of the word.

In the present research approximately 300 entrepreneurs living in the researched area were surveyed about the main characteristics of their business and life style. The survey was focused on the process already researched in the early 90's, but more clearly visible since the relatively long time that had elapsed since the beginning of the social and economic transition of the country. The main research problems the entrepreneurs were quesioned about are the following:

What is the main aim of their businesses? Is it the efficient operation of the capital and the generation of profits, or the subsistence of their families and the maintenance of the consumption level they wish to achieve? How can they achieve their aims? Do they sell their working capabilities, or do they utilise it themselves in a family enterprise?

The main issue may be summarised in the following way: are the owners of the small and medium size businesses, as economic agents, considered to be entrepreneurs, small scale producers, or self employed persons finding no other possible way to earn their living?

The following questions were asked in the questionnaire:
· Who are the entrepreneurs and why do they manage an enterprise?
· What are their ages and school background?
· What material, human, personal and professional resources do they have?
· What fields of activities are their businesses involved in?
· Is the enterprise a main, or a secondary (additional) source of income?
· Are the family traditions important in starting one's own business?
· Are there differences within the generations, and according to the ages of the entrepreneurs?
· What are the main reasons for the fast increase in the number of the enterprises?

General features of the researched area

The research was focused on counties Zala and Somogy, and within them two towns in Zala, and several small villages of the counties were analysed. Within Zala the two towns Keszthely and Héviz vere analysed separately from the villages, and another separate group was formed from the villages located around lake Balaton (in the tables and figures these villages are referred to under the heading "Balaton"). The other villages in Zala and in Somogy are grouped under the respective names "Zala" and "Somogy". County Zala, being the centre of the researched area, has the following characteristics:

· the population density is lower, and the mortality rate is higher than the national average;
· the decrease of the population is smaller, and the proportion of the 18-39 year old inhabitants is higher than the national average;
· the proportion of the industrial employees is less than the average, the proportion of the employees working in the service sector is the same as in Budapest, the capital;
· less than average unemployment rate, especially for the long time unemployed;
· the paid personal income tax per inhabitant is less than the national average;
· high number of the registered enterprises;
· above average proportion of the industrial factories closed down since 1990;
· high number of shops and catering businesses.
(Csite, 2000)

The area has a stable population, developed entrepreneurial mentality and outstanding capacities for tourism. The larger part of the population lives in above average financial and material conditions. A seemingly contradictory fact may be the less than average level of personal income tax paid, and the less than average level of income per person. However, there are strong indications that a large part of the incomes generated by the tourism industry is never mentioned in the taxation accounts (the tax accounts register mainly the incomes of employees, and a significant proportion of the incomes generated by private activities is actually hidden from the taxation authorities). The importance of tourism is indicated by the fact that in 1997 Keszthely had 30 catering businesses, restaurants, pubs, bars, while the neighbouring Héviz had 18, 4 travel agencies operated in Keszthely, and 2 in Héviz, 36 hotels and guest houses offered accommodation for the tourists in Keszthely and 52 in Héviz, and these numbers have not decreased since. The majority of the accommodation is run by families as private enterprises, who had had rooms to let even before 1990, when they offered accommodation mainly for German and Austrian tourists.

It is clear from the earlier research results that a significant proportion of the small scale entrepreneurs is a so-called "forced entrepreneur" (Matolcsy, Diczházi, 1998) and these people would immediately give up their enterprises if they found a job with secure earnings. Their enterprises can generate only a moderate level of income and the main reason for starting the enterprise was the lack of other means for the survival of the person and the family.

The research by Czakó et al. (1995), aimed at describing the typical characteristics of the small businesses in 1993 stated, that though officially 790 000 enterprises with less than 50 employees are registered in Hungary (agricultural enterprises not included), not all of them actually operated. According to their estimations the number of the real running businesses was approximately 20 % less than the number of registered businesses. Since then important steps were made by the authorities to close down the non-existing "phantom" enterprises, so their proportion has been probably decreased, also due to the changed legislation about the social security charges to be paid by enterprises. Another finding of the mentioned research was that 4 - 5 % of the interviewed businesses said to have had no income in 1992 at all.
The social structure of the group of enterpreneurs has undergone significant changes since 1988. In the 80's the notion of being an entrepreneur had become increasingly attractive, but due to economic and political reasons the possibilities for becoming a private entrepreneur were rather restricted, and a strong selection mechanism was visible. To become an entrepreneur the person had to have above average social, cultural and personal connections. Disadvantaged positions were equally typical in the job market for women, people with low schooling, people in unfavourable job positions, the elderly, and low paid young people. Besides the traditional craftsman and retail shopkeeper, partnerships emerged in the middle of the 80's with founders and owners being middle age men, better educated than the average population.
From the early 90's people of various social backgrounds had entered the business sector as entrepreneurs, when the legal conditions had been established, and the political risk associated with a private business disappeared. At the same time, with the increasing unemployment rate, for many people the only available way of earning a living became the establishment of a small scale enterprise.
The idea of the private enterprise had become the symbol of free economy and high living standards within reach, but the negative experiences soon discarded this illusion. The public opinion about the enterprises also changed. In 1990 40 % of the adult population expressed their willingness to become, or satisfaction in being an enterpreneur, this proportion is only 20 % in 1993, 24 % in 1994. The decrease is due to the changed opinion of the professionals and the unskilled, while the skilled workers have continuously found the position of the private small scale entrepreneur attractive (Czakó et al, 1995).

In our research the main objectives were to identify the demographic and sociological characteristics of the small scale entrepreneurs as well as the means and resources they can use to carry out the business activities, the level of their profits or losses, the proportion of their profits they can accumulate, and the purpose they use these savings for. Another issue was whether regional differences can be identified.


RESULTS

Social characteristics and motivating factors of the entrepreneurs

The analysed agricultural and non-agricultural small and medium size enterprises working South and West Hungary can be grouped into two distinct categories. The villages within the triangle defined by the villages Zákány, Somogyvár and Zalaszentgrót have lost their economic value. However, at the same time in the sub-region of Keszthely and Héviz dynamic progress has started, due to the natural resources of the area (lake Balaton, thermal lake of Héviz). Within this sub-region the dominant force of development is not the in-flow of foreign capital and multinational companies, but the small and medium size businesses owned by Hungarian entrepreneurs. This is an outstanding and exceptional model of development in Hungary.

Figure 1: Agricultural areas in Hungary and the researched area (Legends: Black: agricultural zones in Hungary, Grey: studied area in present research)


The researched settlements may be grouped into the following categories by their position after the transition in the 90's:
· Small villages - whose strategic aim is survival, fighting for their pure existence.
· Villages and small and medium size settlements -with somewhat better positions than that of the small villages, but not much.
· Large villages and settlements - having specific advantages due to touristic attractions and resources, thus they can join the winners of the social and economic transition of the country.
· Small agricultural towns - facing losses in the global competition but having strategic plans for development.
· Towns (as Keszthely and Héviz) - being in clearly advantageous position, although some (as Keszthely) have financial difficulties. These difficulties are mainly due to the disproportionately large tasks (large number of schools up to 1999, maintenance of a hospital) for which the state budgetary support is insufficient. Several expanding small businesses exist, concentration of capital is in progress, and Keszthely, in particular, has a strong chance to develop into a commercial, touristic and cultural centre in the region.
· Large towns, cities - they belong to the winners of the transition process towards market economy, though none of the settlements we investigated belong into this category.A few Hungarian-owned large corporations are located in these towns and cities, with good opportunities for regional expansion in the Carpathian basin. Such towns and cities, with transnational development opportunities to become regional centres are Debrecen, Pécs, Szeged, and Gyor in Hungary.
· Budapest, the capital - which is on the top of the settlement hierarchy, being not only a large city but the main winner of globalisation, of the transition toward the market economy and of the original capital accumulation and reallocation process.

A considerable capital concentration process can be identified the 90's in accordance with the settlement hierarchy described above. While the winners become concentrated, the losers, though with significant clustering, are geographically spread, and are scattered in sectors and industries, and differ greatly by their sizes and settlement types, both in economic and social terms. A typical feature of the Hungarian economy is the growing importance of the younger generation in the leading positions of management, as well as the increasing number of female leaders (more women have leading positions in businesses that before, though their proportion has still been low).
The proportion of female entrepreneurs has also grown, which may be partly due to the fact that the number of businesses involved in sales and retail activities has rocketed. Retail is often a family business, as is underlined by our research, and it is equally possible and probable for the wife and the husband to be the registered owner of the family entreprise.

The reasons for starting the enterprise

According to our survey the main reasons of starting and running an enterprise are summarised in the following two tables.

Table 1: How do you carry out your business activity?

Table 2: Why did You start Your own enterprise?

A significant difference may be identified between the towns of the area (Keszthely and Héviz) and the villages around lake Balaton, and the small settlements in county Zala and county Somogy. Note, that the total percentages being higher than 100 % mean that more than one reasons were allowed for each respondent to choose.

The loss of the former job has a high share among the reasons in Keszthely, Zala and Somogy, but the "No other source of income" reason also indicates limited job opportunities in the area. The importance of these two reasons together represent nearly 45 % in Zala and Keszthely, while they add up to approximately 30-35 % in the other three settlement groups. These figures underline the fact that the close down of industrial factories in Zala and in Keszthely greatly contributed to the fast increase in the number of the "forced" entrepreneurs. The proportion of enterprises run in full time is high, its share is above 60 % except for Somogy. The 17 % proportion of retired entrepreneurs in Somogy indicates that the former agricultural employees do not receive sufficient pension to maintain a moderate living standard, so the low amounts of agricultural pensions also compel the retired agricultural population to carry out some income generating entrepreneurial activity.
The breakup of industrial corporations offered opportunities for the entrepreneurs in the commercial, trade and services sectors. The services sector actually enjoyed the advantages of increased demand due to the prosperity in the 80's and the entrance of foreign purchasers in the real estate business.
The hope of higher income as a motivating factor represents a high share in each settlement group, as the entrepreneurs choose the risky option of establishing their own private enterprise to substitute it for the former earnings gained from second jobs typical of the former decade. This is particularly clear in the settlements around lake Balaton, and in the two towns, which are basically resort areas, and where the entrepreneurs may hope for higher incomes coming from the tourism industry and the supporting services activities.

NEXT PAGE


E. Kovács: h12725kov@ella.hu

Z. Bacsi: h5519bac@ella.hu

Department of Social Sciences, Georgikon Faculty of Agriculture, University of Veszprém, Deák F. u. 16, 8360-KESZTHELY,HUNGARY,

Phone: +36-38-312-330, Fax: +36-83-315-105

Manuscript received: January 15, 2000
Accepted for publication: February 18, 2000