This article explores the potential for creating small enterprises out of large in Central and Eastern Europe (with the accent upon Eastern Europe). It argues that most small enterprises have been 'internalized' within the old command economy structure. Breaking up large units will not therefore just be a function of privatization but, if undertaken carefully, can lead to the creation of a small-medium-sized business sector. It firstly surveys the small business scene in Central and Eastern Europe and then explores the view that large organizations can be characterized as an agglomeration of small businesses, looking at the arguments, strategic, production and management, for and against externalization. It then applies this model to the Russian situation with the help of a case from the Chuvash republic. The case is a result of monitoring the Prompribor company since 1989 and reviewing the various problems confronted and the attempted solutions. Finally the paper draws out the implications for Western management development assistance.