GROWTH, INTEGRATION AND SPILLOVERS IN THECENTRAL AND EAST EUROPEAN SOFTWAREINDUSTRY

This paper explores growth and competitive advantage in CEE software firms; it looks at therole of strategic partnerships and industry (spillover) effects. The empirical analysis is basedon survey data from 224 software firms from six CEE countries (Bulgaria, Czech R, Estonia,Serbia, Slovenia, Romania). The results of the descriptive analysis are interpreted from theperspective of the role of capabilities in industrial development. The analysis shows that thepatterns of growth are a mix of sector, region and sub--region specific determinants and showimportant national differences. This suggests that the CEE software industry cannot beconsidered as a homogenous phenomenon. There is no general tendency towards anexpansion in exports; based on our sample only Romania is developing an export orientedsoftware industry.Research shows that the CEE software industry is populated by young, dedicated, domesticfirms, which are independent, and privately owned and which are mainly oriented towardslocalisation of software. They are strongly dependent for trade and production on alliancesand strategic partnerships with foreign partners and a small share of technology basedpartnerships. There is an extensive process of industry upgrading underway, involvingcountry and sub-region specific changes. The spillover effects are significant, through linkswith clients and intensive intra-industry knowledge transfer through high employmentturnover and potentially high knowledge transfer from foreign to local projects. Differencesbetween central and eastern Europe are strong in terms of degree of diversification ofsoftware supply, industrial upgrading and quality of demand.The pattern of software development in CEE differs from that in other emerging markets inthe sense that it is domestic market oriented, but with an emerging export market for services.Its further growth and upgrading will be strongly dependent on the acquisition oforganisational capabilities by local firms....