What is Enterprise Restructuring?

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Enterprise restructuring is enterprises adapting to a new environment.

The economic environment for enterprises in the FSU has changed significantly over the past several years. The breakup of the Soviet Union has led to a new set of currencies, national borders, and regulations. Supply links between enterprises, formerly coordinated by Moscow-based branch ministries, are now organized in a wide variety of ways. State financing, formerly all important, is now often no longer sufficient or sustainable. Interactions with world markets, once subject to strict administrative control, now represent a much bigger opportunity and threat. Prices and exchange rates, once fixed irrespective of economic fundamentals, now openly reflect the effect of various economic policies.

Enterprises in the FSU need to adapt to these new economic conditions. Such change, initiated at the level of individual persons and organizations, presents a particular challenge for societies bearing a communist legacy. Visions of grand changes in human nature (liquidating bourgeois acquisitiveness and imposing Party Consciousness) and in the economic environment (replacing chaotic market relations with centralized state orders) relieved individuals of agency and responsibility. The implications for enterprise restructuring today is that traditional ways of thinking encourage workers and managers to look to others to resolve their problems or to "normalize" the economic environment. Thus enterprises often seek to continue operating in the usual way despite dramatic falls in industrial productivity and unsustainable distortions in industrial structure.

While changes in economic conditions in the FSU have been dramatic, enterprise restructuring is not just a feature of post-socialist transition. Enterprise restructuring is a fundamental, continuing process in market economies. Recent examples of enterprise restructuring in developed market economies include:

Enterprise restructuring in the FSU can take many different forms. Some forms of enterprise restructuring promote sustainable and efficient economic development, while other forms represent ways to resist change or to insulate the enterprise from economic challenges. Without detailed, specific information it is difficult to judge the implications of a particular form of change. For example, laying off workers may reflect a reactive reduction in scale of operations, while preserving employment levels may represent an effective internal reorganization of work. Similarly, Soviet firms traditionally invested heavily, and inefficiently. On the other hand, new investment in needed for major restructuring, and in an environment with market-driven capital allocation, receiving such investment indicates capital market confidence in restructuring plans.

The most important aspect of enterprise restructuring is not specific initiatives but creating the capacity for continual and efficient change. Managers of enterprises around the world recognize that technological change and international competition are shortening product cycles and producing a faster changing economic environment. Such an environment increases the importance of learning and adaption, and well as the values of cooperation, trust, and mutuality that make continual change possible and efficient.

Enterprise Restructuring in the FSU