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Article Type: Guest editorial From: Baltic Journal of Management, Volume 3, Issue 2.
About the Guest Editor Ruth Alas is the Vice-Rector for Scientific Affairs and Head of Management Department of the Estonian Business School. She has written 21 management textbooks and more than 100 articles. She teaches change management. She has given lectures about change management in China and South Africa. Her research focuses on employee attitudes, learning abilities, organisational culture, leadership, crises management, business ethics and corporate social responsibility. She has organized several international conferences in Estonia, and is Chair of EIASM workshops' series Organizational Development and Change. She is on the Editorial Boards of nine journals: European Journal of International Management, Chinese Management Studies, International Business: Research, Teaching and Practice, Baltic Journal of Management, Problems & Perspectives in Management, Journal of Business Economics and Management, Journal for East European Management Studies, The Open Ethics Journal and EBS Review.
Estonia is the smallest of the Baltic States with area of 45,227km2 and population of 1.3 million. About one-third of the population lives in Tallinn, the capital. Urban population comprises 69 per cent of the total. Its geographical position between the Scandinavian countries and Russia has been one important determinant of the economical, political, social and cultural development of Estonia. For Estonia, neighbouring Finland has always been of importance. The close economic connection played an important role in the transformation of foreign trade from east to west and later supported the integration with the western world and particularly with the EU.
Estonian transitionHistorical background
Estonia was at the forefront of reforms in the Soviet Union. Radical reforms in Estonia started in 1987-1988 when a group of theoreticians and practitioners debated the idea of economic autonomy for Estonia. The movement for autonomy gathered force in 1988 and developed into mass political movements for the restoration of independent statehood in all Baltics (Misiunas and Taagepera, 1983, p. 311).
The transition to a market economy was supported by the re-establishment of independence in August 1991. The process of economic reform was radical and quick. The beginning of the 1990s saw a serious decline in the Estonian economy; GDP declined about 14 per cent in 1991, 18 per cent in 1992 and 2 per cent in 1993. In 1994, GDP finally started to grow (Rajasalu, 1995, p. 16).
Arguably, one of the most successful transitions from a socialist economy to a market economy took place in Estonia (Leimann et al., 2003). The liberal market approach taken in Estonia has emphasised the removal of trade barriers, the development of free trade agreements, the introduction of favourable fiscal and monetary policies and the creation of macroeconomic stability.
According to the EU 2000 report, Estonia is a functioning market economy where market forces play their full role (Estonia, 2006). The Heritage Foundation ranked Estonia according to an overall index of economic freedom as among the freest countries in the word: placing it in fourth place in 2002 (Rajasalu, 2003, p. 18). According to the Growth Competitiveness Index, Estonian ranking rose from 27 in 2002 to 22 in 2003 (IMD World Competitiveness Yearbooks, 2004). At the same time, according to an Index of Technological Development Estonia was 10th and according to an Index of Public Institutions and Business Competitiveness Index both 28th (IMD World Competitiveness Yearbooks, 2004).
Model for economic development
Estonia is an example of an open economy whose development and growth has been based largely on foreign trade and foreign direct investments. The most attractive fields of activity for foreign direct investors in Estonia have been real estate, renting and business activities (29.8 per cent) and financial intermediation (28.1 per cent). The other important fields of activity were manufacturing (17.5 per cent); wholesale, retail trade (10.4 per cent) and transport, storage and communication (7.0 per cent) (Statistical Office of Estonia, Bank of Estonia).
Estonian economic growth is first and foremost related to institutional and structural changes. Institutional changes ensured the access to new markets (free trade agreements with other countries, relations with new foreign trade partners, implementing quality control systems which made the production acceptable in foreign markets, etc.). Structural changes were manifested in the formation of new companies producing high-quality goods and in the adaptation of existing companies so that goods and services could be marketed despite increased domestic production costs (Purju, 2004).
Among investors coming to Estonia for the first time, the main determinants were potential market growth, financial stability (convertibility of Estonian currency and free movement of capital) and political stability. Among those investors, who are reinvesting into Estonia, the main determinants were availability of labour, financial stability and production costs. The perspective EU membership also played an important role targeting the Baltic market as the same region. That meant harmonization of institutional frameworks and lower transaction costs for foreign investors (Kilvits and Purju, 2006).
Other important advantages have been related to the country's open economy, its flexible legal framework with no foreign exchange controls or restrictions on foreign investments, the ability of foreign businesses to own land, the unrestricted repatriation of profits, the fact that all profits retained in the company are exempt from corporate income tax, the high level of spoken English and the modern business infrastructure, particularly in telecommunications (Purju, 2004).
Integration with the EU had an important impact on Estonian economic development. In addition to the safety aspect, the integration also significantly directs the development of Estonia's institutions. The application for integration forces the implementation of a more detailed legislative regulation, which enables the control of the activities of both foreign as well as domestic monopolies and also balances the competitive interests of different economic agents (Kilvits and Purju, 2006).
But still, Estonia is a middle-income country and for its future development and to see a decrease in its income gap with high-income countries further structural changes are necessary. A critical factor in the future development and structural change lies in transforming from a transition economy to an innovation economy.
Management research in Estonia
There has been more research done by economists than management scholars in Estonia. During last decade, management research has mostly concentrated on issues connected with organizational culture, pay determinants and international business (University of Tartu), and on topics connected with organizational changes, entrepreneurship and corporate governance (Estonian Business School EBS). EBS has conducted surveys in several international research projects in strategic human resource management (Cranet Network), leadership (Globe Society), international manufacturing strategy (IMSS), values, ethics and corporate social responsibility (EBEN, UFIRC, EABIS).
International organizations have held their conferences in Estonia. Cranet conferences in international human resource management have been organized in Tallinn in 2003 and 2007. Conference of International Society for the Study of Work and Organizational Values was organized by University of Tartu in June 2006. EIASM workshop in organizational change and development were initiated and organized by EBS. Workshops took place in November 2006 in Tallinn and in October 2007 in Vilnius. The 3rd event will take place in September 2008 in Bucarest.
Although the quantitative paradigm dominates management research in Estonia, there are also several qualitative studies about strategic management (University of Tartu), organizational changes, corporate governance and leadership (Estonian Business School).
In this special edition, different research paradigms are applied in order to gain a deeper understanding of various aspects of Estonian management research.
The paper written by Rebekka Vedina and Maaja Vadi from University of Tartu, “A national identity perspective on collectivistic attitudes and perception of organisational culture”, represents Estonian quantitative management research tradition. The paper explores the relationships between collectivistic attitudes and organisational culture perception among Russian-speaking employees in Estonia, Latvia and Lithuania, and explains the findings from the national identity perspective.
Tiit Elenurm from Estonian Business School applies multiple methods in his paper, “Applying cross-cultural student teams for supporting international networking of Estonian enterprises”. Action research is applied by combining a questionnaire survey, analysis of mid-term and final project reports, reflective team discussions and feedback from representatives of enterprises.
The paper from Timurs Umans, alumni of Concordia International University, Estonia and currently Lecturer in Business Administration at Kristianstad University College discusses, “Ethnic identity, power and communication in top management teams”, based on case studies of two multinational companies operating in Latvia.
Laivi Laidroo from Tallinn University in the paper titled, “Public announcement induced market reactions on Baltic stock exchanges”, applies event-study methodology.
The qualitative research paradigm, based on the results of in-depth interviews with 26 top Estonian managers has been used by Mari Kooskora from Estonian Business School to gain a better understanding of corporate governance in Estonia.
Raul Eamets, University of Tartu; Niels Mygind, Copenhagen Business School; and Natalia Spitsa, Free University of Berlin, focus on the development of employee financial participation in Estonia, starting from the evolvement of employee ownership during the privatization of enterprises in the transition period, to emergence of different forms of employee participation, including employee share ownership and profit sharing schemes. The study combines results from earlier research, analysis of Estonian legislation from the late 1980s to the present time, interviews of social partners, data collected through enterprise surveys during the transition period and case studies examining recent incidences of financial participation.
Ruth AlasGuest Editor
Estonia (2006), available at: www.gla.ac.uk/ecohse/estonia.pdf (accessed 9 February 2006).
IMD World Competitiveness Yearbooks (2004), IMD International, Zurich.
Kilvits, K. and Purju, A. (2006), “Public governance institutions and their impact on delocalisation of labour intensive industries with evidences from Estonia”, in Vahtra, P. and Pelto, E. (Eds), The Future Competitiveness of the EU and Its Eastern Neighbours, Turku School of Economics, Pan-European Institute, Turku, pp. 66-87.
Leimann, J., Santalainen, T.J. and Baliga, R.B. (2003), “An examination of the dynamics of transformation of Estonian state-owned enterprises toward a free-market orientation”, in Ennuste, Ü. and Wilder, L. (Eds), Essays in Estonia Transformation Economics, Estonian Institute of Economics and Tallinn Technical University, Tallinn, pp. 49-69.
Misiunas, R.J. and Taagepera, R. (1983), The Baltic States: Years of Dependence, 1940-1980, University of California Press, Berkeley, CA.
Purju, A. (2004), “Tax reforms in the Baltic states and international tax competition”, in Dabrowski, M., Neneman, J. and Slay, B. (Eds), Beyond Transition: Development Perspectives and Dilemmas, Chapter 11, Ashgate Publishing Ltd, Aldershot, pp. 162-8.
Rajasalu, T. (1995), “Macroeconomic stabilization and development”, in Lugus, O. and Hachey, G.A. (Eds), Transforming the Estonian Economy, Majanduse Instituut, Tallinn, pp. 16-51.
Rajasalu, T. (2003), “Indicators of economic freedom and economic structure as determinants of growth and convergence in enlarging EU and priorities for Estonia”, in Ennuste, Ü. and Wilder, L. (Eds), Essays in Estonia Transformation Economics, Estonian Institute of Economics and Tallinn Technical University, Tallinn, pp. 7-32.