Foreign Investment Promotion

Governance and Implementation in Central-Eastern European Regions

Paweł Capik

• Publisher: Palgrave Macmillan
• Year: 2019
• Print ISBN:
  9783030136574
• eBook ISBN:
  9783030136581
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Analysing foreign investment promotion at a regional level in the Czech Republic, Poland and Slovakia, the book applies regional science, international business, and place marketing concepts to explore how Central Eastern European Countries compete for multinational firms. Taking a multidisciplinary approach, the author places special emphasis on promotion and its role within a wider context of regional strategies aimed at inward investment attraction. With useful insights for policy-makers, the book combines theory with empirical evidence and provides valuable reading for those researching international business location, place marketing and regional development.

© The Author(s) 2019

Paweł CapikForeign Investment Promotionhttps://doi.org/10.1007/978-3-030-13658-1_1

Begin Abstract

1. Firm Internationalisation and Investment Attraction: An Introduction to Foreign Direct Investment in Central-Eastern European Countries

Paweł Capik¹

(1)

Keele Management School, Keele University, Keele, UK

Paweł Capik

Email: [email protected]

Keywords

Central-Eastern EuropeForeign investmentRegionsMultinational enterpriseLocation

End Abstract

1.1 Introduction

The old maxim that “location, location, location” are the three most important factors determining company’s success rings true particularly for international business (Daniels, Radebaugh, & Sullivan, 2019). Yet, business decision-makers are rarely able to have complete knowledge and understanding of the opportunities within the foreign environments to which they plan to expand (Sitkin & Bowen, 2010). Equally, the success of places within globalised economy is progressively more dependent on their participation in the international value chains facilitated by incoming foreign investors (Dogaru et al., 2015; Crescenzi & Iammarino, 2017).

The mobility of multinational enterprises (MNEs ) and its integral part, the imperfect knowledge of available locations, and a growing interest from countries, regions and cities in attracting operations of foreign companies in the hope of benefiting from their expertise, technology and capital explain the growing interest in various forms of place promotion aimed at investment attraction shown by public authorities across the world, including Central-Eastern European Countries¹ (CEEC).

It is widely believed that, being under the constant scrutiny of shareholders, MNEs are calculating, mercenary and almost predictable. Yet usually the investment process is long and complex and the decision-makers are not immune to external pressures and persuasion, particularly if supported by hard evidence (Aharoni, 2010; Schotter & Beamish, 2013). Aware of this fact, governments and other public institutions at various levels promote their areas as prime locations to attract inward investment and profit from the advantages this brings in order to achieve their development goals (Cleave, Godwin, Sadler, & Gilliland, 2016; Harding & Javorcik, 2012; Monaghan, Gunnigle, & Lavelle, 2014).

Regions in the Czech Republic, Poland and Slovakia, the key geographical focus of this study, began emerging on the global map of foreign direct investment (FDI) destinations only since the beginning of 1990s. As relative newcomers, they have to compete with established Western European destinations and other emerging locations in the neighbouring countries, Asia and Latin America. Their accession to the European Union (EU ) in May 2004 and the implementation of its acquis communautaire reinforced the competition between them, simultaneously burdening them with increased responsibilities for their own development (Blokker & Dallago, 2009; Swianiewicz, 2014). Consequently, an increasing number of regional authorities across Central-Eastern Europe (CEE) became involved in some form of promotion activity in order to secure the inflow of foreign investments.

The discussion presented in this book focuses on the years soon after CEEC joined the EU allowing controlling for the ‘EU effect’ in FDI flows, which appeared in the subsequent years (Ascani, Crescenzi, & Iammarino, 2017). Despite the passage of time, the analysis remains relevant for several reasons. There has been no major reform of the regional governance system in any of the studied countries since the study explored in this book took place. The scope of regional authorities’ responsibilities directly related to FDI promotion established in the reforms pre-EU accession remained the same, and by 2005² (the census year for the book), the relevant systems have been in place and continue largely unchanged since. More significantly, from the perspective of the book’s theoretical contribution, the problem it addresses remains unexplored as evidenced by recently published research (e.g. Almond, Ferner, & Tregasis, 2015; Cleave et al., 2016; Monaghan et al., 2014). In this context, the lessons from a decade ago remain relevant and exhibit potential to influence the future, if discussed in the public domain. Finally, by offering a detailed account of regional investment promotion in CEE in its initial years, the book will serve as a point of reference for any future studies investigating evolution of investment promotion approaches.

Driven by a set of interlinked research questions, the book explores regional promotion aimed at investment attraction across CEEC. It proposes a novel approach to regional promotion, and identifies concepts which can be translated into actions and strategies. Subsequently it examines how far this has been achieved in Central-Eastern Europe. By so doing, the book achieves two objectives. Firstly, on the conceptual level, it develops a theoretical debate of regional promotion rooted in place marketing and regional studies literature. Key issues addressed include applicability of place marketing concepts to policies and activities aimed at investment attraction, the scope and focus of regional promotion process, the nature of the regional offer, the prescribed role of the public authorities and other actors involved in promotion and factors determining its success.

Secondly, in its empirical dimension, the book presents analysis of the purposefully collected interview and survey data in the conceptual context outlined above. The discussion offers insights into how far regions in CEEC have been successful in developing and implementing coherent strategies for their promotion to potential inward investors.

The chapter sets the stage and provides context for the discussion presented in this book. Its remaining parts proceed as follows. First, the review of CEEC participation in global FDI flows highlights the potential to be captured. Next, the discussion of MNEs’ contribution to the transition process explains why they remain to be so keenly courted by public authorities. The subsequent parts explain the rationale behind the geographical focus of the book. Next, the overview of the MNEs’ location decision process identifies the stages at which place promoters can exert influence on firms, while the discussion of the key aspects of the regional promotion process reveals how this can be achieved.

1.2 CEE Foreign Investment Inflows in the Global Context

Since late 1980s the growing interdependencies within the global economy and interconnectedness of international business operations, coupled with systematic liberalisation of the global trade and investment regime, have contributed to an increase in the mobility of capital and progressive growth of foreign investment flows. While between 1989 and 1991, the global FDI inflows reached just over 186 million USD, and in the year 2000, it peaked at 1.4 billion USD. A subsequent decline at the turn of the century soon has been followed by a steady increase and peaked at almost 2 billion USD in 2007. After the global economic crisis of 2008, these levels were only recovered in 2015 (UNCTAD, 2003, 2018).

This fluctuation has been partially attributed to the varying numbers and values of cross-border mergers and acquisitions (M&A). While in 1995 the total value of M&A reached 186 million USD, in 2000 it exceeded 1.1 billion USD. After a few years of decline the upward trend started to re-emerge, and in 2005 the global value of M&A totalled 716 million USD. The recovery from the crisis period lasted until 2016, when the global value of M&S totalled at 887 million USD.

The second component, more relevant to this discussion of inward investment flows, greenfield projects, followed a somewhat different trajectory (Table 1.1). The number of projects almost doubled between 2002 and 2003 but subsequently the growth dynamics subsided, and in 2015 there were over a thousand less FDI projects completed than in 2010 (UNCTAD, 2007, 2016).

Table 1.1

Number of greenfield investment projects

	2002	2003	2004	2005	2010	2015
Czech Republic	95	144	144	149	190	113
Poland	91	154	234	270	323	234
Slovakia	44	65	87	117	103	38
World	5703	9443	10,145	10,442	15,425	14,381
EU (25)^a	1802	2647	3057	3527	5141	4774

Source: UNCTAD (2007, p. 207, 2016, p. 213)

^a2010 figures for EU27; 2015 figures for EU28

The inward investment flows to Central-Eastern Europe have mirrored the global trends, with the region gaining an increasing share during the 1990s and early 2000s. However, despite considerable and consistent reforms and improvements in the business environment since the beginning of the systemic transformation in 1989, CEEC involvement in global capital flows remained limited throughout the 1990s and early 2000s. In 1990 the total inflow of foreign investments to (then) Czechoslovakia and Poland equalled a mere 0.15% of flows received by developed economies. Ten years later the share received by the Czech Republic, Slovakia and Poland increased to 1.45% and, in 2005, the first full year of their EU membership, reached 4%. Despite the positive trend and the fact that the three countries attracted almost 65% of all inward investments into the ten new EU Member States, this result placed the Czech Republic, Poland and Slovakia considerably behind other European nations.³ For example, in 2005, the considerably smaller countries...

Table of contents

• Cover
• Front Matter
• 1. Firm Internationalisation and Investment Attraction: An Introduction to Foreign Direct Investment in Central-Eastern European Countries
• 2. Place Marketing, Promotion and Investment Attraction
• 3. Regional Product, Its Image and the Politics of Investment Attraction
• 4. Regional Authorities Attracting Investors
• 5. Governance and Implementation of Investment Promotion in Central-Eastern European Regions
• 6. Conclusions: Between Assumptions and Reality
• Back Matter