Videoton: the Growth of Enterprise through Entrepreneurship and Network Alignment

'The success stories will not be the vast government organisations that are easy to identify - Robotron in what was once East Germany, Videoton in Hungary, Iskra in Yugoslavia - but companies founded by men and women whose names are as yet unfamiliar' Harvard Business Review, January – February 1991, p. 26 'Micro Capitalism: Eastern Europe's Computer Future' by Esther Dyson This quotation from 1991 Harvard Business Review illustrates the mainstream perspective on entrepreneurship in central and eastern Europe (CEE). New small firms led by unknown entrepreneurs will grow through generic expansion while large ex-socialist conglomerates are doomed to bankruptcy. Indeed, this picture reflects to a great extent what has happened to a large number of firms and sectors in CEE. However this metaphor is also excessively simplistic, as the case of Videoton shows. It abstracts from the institutional and network context in which restructuring and entrepreneurship take place. The case of Videoton shows how the growth of enterprises in CEE inevitably rests not only on entrepreneurship but also on the existence and alignment of several other factors. The business model that has been developed through Videoton has greater relevance for understanding the growth of enterprises and the modes of integration of the CEE into the global economy. It shows that the restructuring and subsequent growth of Videoton cannot be explained merely as a case of individual entrepreneurship without taking into account that its success is also based on the alignment of several networks. In the first section we briefly present the company's history and profile. The second section focuses on the key restructuring in Videoton: a shift to contract manufacturing. Section 3 describes Videoton's first outward investment. Section 4 addresses the fact that Videoton has managed to survive and grow through a holding structure. Local networks and industrial parks are important factors in explaining Videoton's strategy (section 5). Its relationships with government are addressed in Section 6. The price of success is retreat from being a producer of final products to being a contract manufacturer. Whether this step back enables further growth is discussed in Section 7. The key strategic problem for a contract manufacturer like Videoton is how to avoid dependent and low value added subcontracting (Section 8). Finally, the growth of Videoton has led to the relocation of several investments and contracts to Hungary (Section 9). Our main conclusion is that the growth of Videoton is best explained through entrepreneurship and alignment of the networks perspective.