國際商務管理essay：發展中國家的外商直接投資

 

引言 

 

全球化一詞在今天可以稱為是商業的關鍵詞，并且它的重要性也在不斷增加。公司為了保持競爭力就必須面對在國外做生意以及進入海外市場的挑戰。這種發展使得傳統的獨立國內市場變成了一個沒有任何邊界的全球市場。當然這樣一個全球市場為公司提供了許多機會,但同時也帶來了大量的風險。

 

這樣一個國際化經濟不僅意味著商品和服務跨國界的傳輸，也意味著海外投資的出現。由于持續的全球化現象 ，外國直接投資(FDI) 在2008年的全球金融危機中幾乎沒有影響全球經濟和金融市場 ，在這之前的2003年至2007年期間也大幅度增長。隨之而來的對商品和服務需求的下降，導致了企業減少了他們在國內市場和海外的投資。因此,全球經濟下滑也影響了全球外國直接投資活動,特別是在2008年和2009年上半年。[1] 

 

盡管遭受了金融危機，轉型期國家的FDI流入仍然在2008年升至創紀錄的水平。

 

Foreign Direct Investment In Western Balkan Economics Essay

 

Introduction

 

The term globalization can be referred to as a keyword of today’s business and is constantly gaining in importance. Companies have to face the challenge of doing business abroad and enter foreign markets in order to stay competitive. This development has turned separate traditional domestic markets into one global market place without any boarder lines. Such a global market offers of course many opportunities to companies but poses at the same time lots of risks.

 

Such an internationally linked economy implies not only the transfer of goods and services across country boarders but also investments abroad. As a result of the enduring globalization the amount of Foreign Direct Investments (FDI) grew dramatically during the period of 2003 till 2007 before the worldwide financial crisis in 2008 hardly affected the global economy as well as the financial markets. The consequent falling demand for goods and services has caused companies to decrease their investments on domestic markets but also abroad. As a consequence, the global economic downturn also affected the global Foreign Direct Investment activities, especially in 2008 and in the first half of 2009. [1]

 

But despite the financial crisis, the FDI inflows of transitional countries rose in 2008 to record levels. This demonstrates the increasing importance of these economies as host countries for FDI during the crisis – at least in 2008. Their FDI inflows initially declined in late 2008 as the economic downturn in major export markets began to seriously affect their economies. Thus the downturn in Foreign Direct Investment inflows into transition economies began pretty late compared to the developed countries. [2]#p#分頁標題#e#

 

Due to this phenomenon the research paper focuses on the examination of the Foreign Direct Investment policy of countries in transition, more precisely the South-Eastern Europe and Western Balkan countries.

 

Foreign Direct Investment

 

In order to ensure an easy understanding of the following paper, this chapter is aimed to provide the reader with the theoretical basics concerning the term Foreign Direct Investment (FDI). The term will be examined with view to its economic relevance including advantages and disadvantages. Besides a classification regarding the entry mode and the outward respectively inward aspect of FDI, the delimitation from the similar concept of Foreign Portfolio Investment (FPI) will be discussed.

 

Definition

 

As already mentioned in the introduction, the term FDI plays a decisive role in today’s business. But what do we actually mean by Foreign Direct Investments?

 

As a basic principle, foreign direct investments require a business relationship between the parent company and its subsidiary in a foreign country. Together, the parent company and its affiliate comprise a Multinational Company (MNC) or Transnational Company (TNC). An investment can be regarded as an FDI, only if the parent firm holds at least 10% of the ordinary shares of its foreign subsidiary. In addition, it is also referred to as FDI if an investing firm owns voting power in a company which is doing business in a foreign country. [3]

 

Economic Relevance

 

FDI displays a complex issue, which combines aspects of both international trade in goods and international financial flows. Individual businesses have to face localization and ownership considerations while the public fears unemployment and the loss of independence. For policy makers on the other hand it is challenging to increase the attractiveness of their country as a business location for international companies and to provide a ground for positive spillovers but at the same time responding to the fears of the public. Another major role approaches to international institutions, which are entrusted with the provision of data regarding FDI, funds and investment insurance. Furthermore, institutions have to serve as an interface between nations to ensure a frictionless dialog and communication. [4]

 

During the past the FDI policy has dramatically changed. Investors extended their investment territory and started to enter new territories in both a geographical and sectoral sense. As a consequence, competition increased among investor countries but also FDI host countries. But FDI also displayed its power to intense business connections between regions and countries. To sum up, Foreign Direct Investments represent a powerful instrument which influences the entire business landscape. [5]#p#分頁標題#e#

 

Advantages

 

In principle, FDI supports the economic development of a country in which the investment has been made. Therefore, Foreign Direct Investment is especially desirable for economically developing countries as well as countries in transition. The transfer of technology but also the developments of human capital resources are phenomena that come along with FDI. Even the creation of new jobs as well as an increase in the salary of workers can be accredited to FDI. Furthermore, the income that is generated through revenues realized through taxation and the productivity of the host countries can be increased.

 

Also for the countries which are investing abroad the whole process has a positive impact. The companies that are carrying out FDI are able to enter new markets and generate as a consequence more income as well as profits. [6]

 

Disadvantages

 

A possible disadvantage of Foreign Direct Investment displays the fact that the economically backward section of the host country is always inconvenienced if the stream of foreign direct investment is negatively affected. Therefore, it is important that the host country controls the impact of FDI activities and ensures that the foreign investors adhere to the environmental, governance and social regulations of the host country. In addition, also cultural differences, certain economic policies as well as national secrets of the host country may lead to serious problems when making Foreign Direct Investments. [7]

 

Entry mode

 

Since the market entry to foreign countries does not necessarily imply the construction of new production facilities abroad, different entry modes to the host countries within the frame of Foreign Direct Investments have to be distinguished.

 

Green Field and Brown Field Investments

 

Green Field Investments describe foreign investments that imply the construction of a new production site. More precisely, the parent company builds a new operational facility in the host country and creates at the same time also new long-term jobs in the foreign country. Brown Field Investments on the contrary refer to the purchase or leasing of already existing production facilities. [8]

 

Mergers and Acquisitions

 

The term Mergers and Acquisitions (M&A’s) is usually used as a collective name for two closely linked but different proceedings. A Merger defines the fusion of different companies whereat either the taking over company or all involved companies loose their legal entity to finally constitute a new business entity. An Acquisition on the other hand implies the purchasing of another firm and the subsequent integration of it in the existing company of the buyer. [9]#p#分頁標題#e#

 

Outward and Inward Foreign Direct Investments

 

Basically, Inward Foreign Direct Investment is termed as the investment of foreign capital which occurs in local resources (the country serves as host country) whereat Outward Foreign Direct Investment refers to local capital which is invested abroad (the country acts as investor).

 

Inward Foreign Direct Investment

 

In order to rank countries regarding their share of Inward FDI and to measure the Inward FDI relative to the economic size of a country the Inward FDI Performance Index was developed. This index describes the ratio of a country’s share in global FDI inflows to its share in global Gross Domestic Product (GDP): [10]

 

INDi =

 

FDIi / FDIw

 

GDPi / GDPw

 

INDi = Inward FDI Performance Index of the ith ereCountry

 

FDIi = FDI Inflows in the ith Country

 

FDIw = World FDI Inflows

 

GDPi = GDP in the ith country

 

GDPw = World GDP

 

Figure 1: Inward FDI Performance Index [11]

 

An Inward FDI Performance Index greater than one indicates that the country (i) receives more Foreign Direct Investment than its relative economic size, while a value below one states that the country receives less. If foreign investors disinvest in the determined country the value is negative. [12]

 

Outward Foreign Direct Investment

 

Similar to the Inward FDI Performance Index (see chapter 2.4.1 Inward Foreign Direct Investment), the Outward FDI Performance Index demonstrates the share of a country′s outward FDI in world FDI as a ratio of its share in world GDP: [13]

 

ONDi =

 

FDIi / FDIw

 

GDPi / GDPw

 

ONDi = Outward FDI Performance Index of the ith dfsddddddd Country

 

FDIi = FDI Outflows in the ith country

 

FDIw = World FDI Outflows

 

GDPi = GDP in the ith country

 

GDPw = World GDP

 

Figure 2: Outward FDI Performance Index [14]

 

In the main, this Index mirrors two sets of factors which determine outward FDI by multinational companies headquartered in a given country. These factors are ownership and location advantages. Due to the globalization trend these factors lead firms to invest abroad and establish foreign affiliates which later on become a source of competitive strength of their corporate networks. [15]#p#分頁標題#e#

 

Delimitation from Foreign Portfolio Investment

 

International equity flows can be divided into two major forms, talking about Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). Although these two Investment forms have certain similarities there exists a main difference in the field of ownership and control of the domestic affiliate. [16]

 

Foreign Direct Investments imply both the ownership as well as the control of the domestic firms, wherefore the investors are actually the managers of the affiliates. FPI investors on the other hand own the domestic firm without exercising control. Therefore, FPI investors have to delegate decisions to managers although the manager’s motivations must not always coincide with the owner’s intentions. A direct investor, who acts as manager of the own projects, is of course more informed regarding changes in the prospect of the project than a portfolio investor. [17]

 

As a consequence, Foreign Portfolio Investment projects are managed less efficiently than FDI projects. This effect leads to an advantage for direct investments compared to portfolio investments, since an added value in the capital markets can be generated. [18]

 

To sum up, Foreign Portfolio Investment describes the investment into stock markets and the acquisition of financial assets, which include stocks, bonds, deposits and currencies. Foreign Direct Investment on the contrary focuses on the acquisition of controlling interest in foreign companies. [19]

 

South-Eastern Europe and Western Balkan

 

As the main focus of the research paper is the discussion of FDI in South-Eastern Europe and Western Balkan (SEE & WB) the following chapter is aimed to give a regional overview and present some facts about the economic situation of these countries. In addition, the progress in transition of the countries representational for this research paper will be examined and the issue of a possible integration to the European Union discussed.

 

Regional Overview

 

Regarding the countries that constitute South-Eastern Europe and Western Balkan (SEE & WB) there exist different definitions in the literature. In this research paper the following countries are referred to as SEE & WB: [20]

 

Albania

 

Macedonia

 

Bosnia & Herzegovina

 

Montenegro

 

Bulgaria

 

Romania

 

Croatia

 

Serbia

 

The other countries which are frequently referred to as South-Eastern Europe and Western Balkan countries are Greece, Hungary, Kosovo, Moldavia, Slovenia, Turkey and Ukraine.#p#分頁標題#e#

 

Economic Situation

 

South-Eastern Europe and Western Balkan is a region of economies in transition with backgrounds of central planning or social ownership. Romania, Bulgaria and Albania followed the central planning orthodoxy while in the Western Balkan countries, except for Albania, the decentralised system of social ownership of the former Yugoslav republics is operated. [21]

 

To give an idea of the progress in structural reform of the countries representational for this research paper, the following table presents the average transition score of each country:

 

Average transition score (Scale: 1 to 4,33)

 

Albania

 

3,07

 

Bosnia and Herzegovina

 

2,78

 

Bulgaria

 

3,56

 

Croatia

 

3,55

 

Macedonia

 

3,26

 

Montenegro

 

2,85

 

Romania

 

3,44

 

Serbia

 

2,89

 

Table 1: Average transition score of SEE & WB countries

 

To sum up, Bulgaria, Croatia and Romania are the countries with the highest average transition score, while Bosnia and Herzegovina, Montenegro and Serbia display the countries with the lowest progress in transition.

 

Besides the progress in transition, the table below shall give an overview of the economic performance of these countries by using the growth in real GDP:

 

Growth in real GDP

 

(in per cent)

 

2004

 

2005

 

2006

 

2007

 

2008

 

2009

 

Estimate Projection

 

Albania

 

5,7

 

5,7

 

5,4

 

6,0

 

6,8

 

3,0

 

Bosnia and Herzegovina

 

6,3

 

3,9

 

6,7

 

6,8

 

5,4

 

-3,1

 

Bulgaria#p#分頁標題#e#

 

6,6

 

6,2

 

6,3

 

6,2

 

6,0

 

-6,0

 

Croatia

 

4,2

 

4,2

 

4,7

 

5,5

 

2,4

 

-5,4

 

Macedonia

 

4,1

 

4,1

 

4,0

 

5,9

 

4,9

 

-1,6

 

Montenegro

 

4,4

 

4,2

 

8,6

 

10,7

 

7,5

 

-4,1

 

Romania

 

8,5

 

4,2

 

7,9

 

6,0

 

7,1

 

-8,0

 

Serbia

 

9,3

 

6,3

 

5,5

 

6,9

 

5,4

 

-4,0

 

Table 2: Growth in real GDP (in per cent) for South-Eastern Europe [22]

 

During the past decade, the South-Eastern and Western Balkan region has undergone a dramatic transformation. But by the end of 2008 respectively 2009 also the Balkan countries were affected by the global financial crisis. However, as of early February 2010 there are signs that output is stabilising again and that the growth rates of recent years could be returning soon. [23]

 

Integration to the European Union

 

At the meeting of the European Council in 1993 three criteria which applicants would have to fulfill before accession were defined. The first criteria displays the stability of institutions guaranteeing democracy, the rule of law, human rights as well as the respect for and protection of minorities (Political Criterion). Secondly, the country needs an efficient market economy and the capacity to cope with competitive pressure and also market forces within the European Union (Economic Criterion). And thirdly, a candidate country must have the ability to take on the obligations of membership including adherence to the aims of the political, economic and monetary union (Acquis Communautaire Criterion). [24]

 #p#分頁標題#e#

Still there exist limits of the European regional activities and the willingness of the Balkan countries to overcome their differences and cooperate with each other. Therefore, the EU’s major challenge displays the management of the different national capacities and the various speeds of integration in a context of regional inclusion to generate positive spillover and moderate competition toward the goal of EU membership. To sum up, the Commission’s impact relies on the commitment of the local players to act together, the political will of the EU member countries to keep the regional enlargement going and the existence of a long-term vision. [25]

 

In 2007 the two countries Bulgaria and Romania were able to meet the criteria set by the European Council in 1993 and as a result successfully joined the European Union. Croatia and Macedonia are besides Turkey the current candidate countries of the European Union. The other countries, talking about Albania, Bosnia & Herzegovina, Montenegro and Serbia are not up to debate for an EU membership at the moment. [26]

 

Foreign Direct Investment in South-East Europe and Western Balkan

 

Based on the theoretical part, this chapter will focus on the general FDI policy in South-Eastern Europe and Western Balkan. Later on, two countries, talking about Croatia and Bulgaria will be discussed in detail regarding their FDI policy.

 

Overview

 

Beside the challenge to cope with the requirements of the European Union the countries constituting South-Eastern Europe and Western Balkan have to deal with the ongoing globalisation as well. As a result, all these countries in transition, independent of their development level and historical background, have to host inward-FDI to stay competitive. In the specific case of transitional countries, FDI can support the achievement of modernization, industrial upgrading and the improvement of productivity by importing and diffusing foreign technologies. However, to serve as a host country for FDI, countries in transition must offer competitive conditions for production and sales. [27]

 

Inward FDI

 

To mirror the impact of FDI for the economic situation of South-Eastern Europe and Western Balkan countries, the figure below shall present the inward FDI development during the past six years: [28]

 

Foreign Direct Investment

 

(net inflows recorded in the balance of payments)

 

2004

 

2005

 

2006

 

2007

 

2008

 

2009

 

Estimate Projection

 

Albania#p#分頁標題#e#

 

324

 

258

 

315

 

647

 

844

 

650

 

Bosnia and Herzegovina

 

708

 

608

 

718

 

2.088

 

1.003

 

600

 

Bulgaria

 

2.879

 

4.005

 

7.583

 

11.433

 

8.472

 

5.775

 

Croatia

 

732

 

1.551

 

3.194

 

4.736

 

4.576

 

2.731

 

Macedonia

 

322

 

94

 

424

 

700

 

612

 

300

 

Montenegro

 

63

 

482

 

585

 

717

 

805

 

638

 

Romania

 

6.368

 

6.587

 

10.957

 

9.629

 

13.519

 

4.900

 

Serbia

 

966

 

1.550

 

4.264

 

2.523

 

2.717

 

1.400

 

Table 3: Foreign Direct Investment in South-East Europe and Western Balkan

 

In 2008 the inward FDI flows in South-Eastern Europe and Western Balkan reached a new record high despite the global financial crisis and several armed conflicts within and between countries in certain parts of the region. Especially in the first half of 2008 the growth rate of FDI inflows was high, but then the crisis deeply affected several countries by late 2008. Therefore, initial hopes that the region would prove relatively immune to the financial crisis disappeared. As a result, FDI inflows started to slow down in the second half of 2008 and continued to show signs of a sharp decline in the first half of 2009. [29]#p#分頁標題#e#

 

Outward FDI

 

In 2008, the FDI outflows from this region sustained their upward trend, accomplishing $58 billion. However, as with inflows, development in outflows varied between the first and second half of 2008. In the first half of the year, abundant liquidity, a force to penetrate new markets and access to raw materials continued to prompt outward FDI. Divestments or freezing of acquisitions characterized the FDI activities of TNCs from the region in the second half of the year. [30] p 107

 

The half of the projects in Greenfield operations by the investors from South Eastern Europe were undertaken in the region concentrating mainly in the development of extraction activities, such as metals, mining and oil fields. [31]

 

Greenfield Investment vs. M&A’s

 

FDI boom throughout the period 2001–2007 was stimulated primarily by a surge in cross border M&A’s, and not as much by the Greenfield investment. [32] Dropping stock prices and shrinking corporate profits due to the crisis have seriously reduced the value of, and extent for, cross border M&As in developed and increasingly in developing countries. Decreasing demand for goods and services was reason for companies to cut back on their investment plans in general, including abroad – whether through cross border M&A’s or Greenfield projects. The latter mode of investment began to fall only in 2009. p 36

 

With regard to the manner of investment, Greenfield investments were originally more resilient to the crisis in 2008, but in the year 2009 they were hit badly and whilst cross-border M&A’s have been on a constant decline they are expected to lead the future recovery. p18

 

In 2008 in South Eastern Europe and Western Balkan the cross-border M&A’s sales of firms increased further in the manufacturing sector whilst those in the services and primary sectors fell considerably after reaching remarkably high values in 2007. On the other hand, in the manufacturing sector cross-border M&A’s purchases increased, stayed on the same level in the primary sector and diminished in the services sector. One of the major causes for this decline in the primary sector was increasing of the restrictions on investment in oil and gas in the host countries. [33]

 

The EU share in cross-border M&A’s in 2008 fell from 85% to 83%, and in 2007 from 60% to 57% in Greenfield projects. Companies from developing countries undertook some Greenfield FDI projects as well. The share of transition economies in cross-border M&A’s as buyers in the region remained the same at 12% in both years 2007 and 2008. p107

 

The Role of FDI in Transitional Countries

 

In general, there exist three areas in which a host country in transition is affected by FDI inflow, talking about an increase in capital stock, higher productivity and positive spillovers. [34]#p#分頁標題#e#

 

Increase in Capital Stock

 

At the beginning of the transition process, capital scarcity was predominant in this area. Although saving rates are usually quite high in centrally planned countries, it has to be pointed out that the available capital was not invested in the most efficient way. After the change in regime, some of the existing capital even depreciated. Since involuntary savings were abolished and consumption opportunities increased, domestic investment became to low to keep up with the emerging need for capital accumulation. One way to bridge the gap between the money that households were willing to save and the capital that companies needed to invest was respectively is the inflow of FDI. [35]

 

Higher Productivity

 

The source for higher productivity of affiliates established or controlled by FDI is their access to more efficient technologies. In addition, foreign-owned firms usually operate more productively than the local companies, wherefore an increase of FDI causes an overall productivity increase in the host country. The ability of a country to accumulate new technologies and implement them to the production process is referred to as absorptive capacity. In this sense, the ability to absorb and integrate processes and technologies that were innovated elsewhere is meant and not the innovation degree of the host country. Furthermore, it has to be mentioned, that the quality of domestic human capital is probably the most important factor for the absorptive capacity and consequently the higher productivity of a country. [36]

 

Positive Spillovers

 

There exist several types of spillover effects which can appear through Foreign Direct Investments:

 

Innovation effect

 

Foreign Direct Investment

 

Technology spillovers

 

Knowledge spillovers

 

Technological knowledge spillovers

 

Organizational spillovers and

 

imitation

 

Productivity spillovers

 

Wage spillovers

 

Learning effect

 

Indirect influence Strong direct influence

 

Competition effect

 

Figure 3: Classification of Spillover Effects [37]

 

The first group, learning effects, contains technology and knowledge spillovers. We talk about technology spillovers if foreign technology is used to generate further innovation. Knowledge spillovers on the contrary represent the process by which an inventor learns from the research outcomes of others and is able to enhance his/her own research productivity with this knowledge without compensating the other inventors. Organizational spillovers and imitation are given if the technology is more or less copied one-to-one and no further innovation is created. [38]#p#分頁標題#e#

 

Competition effects appear whenever a foreign firm enters the market. It is assumed that if a firm invests abroad, it possesses comparative advantage over its local competitors wherefore mainly productivity but also wage spillovers can be achieved. The third group of spillover effects refers to the growth of innovativeness of local companies. If foreign companies enter the local market, the local firms prepare themselves for strong foreign competition, create their own solutions and try to be ahead by using their better knowledge of the local market. [39]

 

The Patterns of FDI in Transitional Countries

 

The Patterns of FDI from 1990 to 2008

 

The opening up and the transition to market economy of South Eastern Countries and Western Balkan has been accompanied by a surge in of FDI flows into these countries. The bulk of inflows have been directed at Hungary, Romania, Bulgaria and Croatia since the end of 1990’s. This was linked with progress in political and social stabilization as well as with beneficial exerts of economic and political reforms. By 2005 Romania, Bulgaria and Croatia were the recipients of 83% of all FDI inflows into the Balkan area.

 

By accounting for differences in country size the top receivers of the FDI inflows have been Estonia, Croatia and Macedonia.

 

The FDI has flown rather unevenly to the different sectors of the European transition economies. http://books.google.com/books?id=4RqQGesjmNQC&pg=PA207&dq=fdi+patterns+south+eastern+europe&ei=ber7S_vSIonAywSK-eW4Cg&cd=2#v=onepage&q=fdi%20patterns%20south%20eastern%20europe&f=false

 

The Patterns of FDI after 2008

 

For developing and transition economies the FDI inflows increased in 2008 to record levels, where their global FDI inflows shares from the previous year grew for inward FDI from 27% to 37% and for outward FDI from 5% to 7%. The mutual share was 43% which was close to the record share reached in 1982 and 2004. This demonstrates the growing importance of these countries as hosts for FDI throughout the crisis – at least in 2008. The inflows to these economies, started to decline in the second half of the year 2008 as the economic recession in main export markets began to gravely affect their economies, and as the corporate debt and risk premiums sharply increased. Therefore the downturn in FDI inflows into transition and developing economies began almost one year later after it had happened in developed countries. This mirrors the time lag linked with a consequent slump and the initial economic downturn in demand in the markets of the developed countries, which are main destinations for goods produced by firms from developing-countries and transition-economies. p39

 

Institution –Based Attractiveness#p#分頁標題#e#

 

The internationalization and market size of the host economy give an explanation to a considerable part of the FDI inflows. Nevertheless civil rights related to investment decisions strengthen location advantages and furthermore help a country to become more attractive location for FDI inflows.

 

Quality of the institutions makes a country attractive for the TNCs past its market size and its internationalization and productive endowments.

 

Countries which are notable by a system with rules of law that are more equitable, with lower corruption rate and with more freedom in economic activities achieved much better performance in attracting inward FDI than the countries which are characterized by significant deficiencies in these areas.

 

Countries, suffering from limitations in economic activities either by an intervention from governmental institutions or which are influenced by non-governmental agencies such as mafia or armed groups, attract smaller amount of FDI inflows.1

 

Both corruption and poor quality of institutions increase the cost of production for the companies. Also poor institutions are associated with meager public goods such as transportation infrastructure. 2 p212

 

Therefore an environment conducive to investment is created by good institutions that guarantee property rights and which minimize transaction costs. Thus, the use of policies that aspire to stabilize of both political and social environment as well as the execution of a proficient judiciary and bureaucratic system is what could help these countries to increasingly attract FDI inflows. 1

 

The governments of SEE and WB economies should therefore focus primarily on building a good legal system. As economies that were able to establish transparent and an efficient legal system and that had their political and economic conditions relatively stable have been these with highest flow of FDI in the past decade. 3

 

Case Study Croatia

 

Republic of Croatia has a population of about 4.49 million. It is a Candidate Country to become a member of the EU.

 

The growth of GDP stopped in 2008 compared to a record GDP of 5.5% in 2007 the GDP in 2008 decreased to only 2.4% gain and dropped an annual 5.8% in 2009.1#p#分頁標題#e#

 

Since the year 1999 FDI outflows, inflows and stocks from EU to Croatia have increased considerably. 2

 

The economy has been privatized almost by two-thirds and there was a significant expansion in the small and medium-sized enterprise sector. In Croatia the share of foreign ownership in its forty three banks is more than 90 percent and contains two-thirds of all banking assets. 4

 

Inward FDI

 

FDI stocks from EU in Croatia have steadily grown from 1999 to 2006. The FDI inward flows to Croatia from EU-25 increased by 308% from 2000 to 2006, accomplishing EUR 11.8 bn. in the year 2006.

 

FDI inflows from EU to Croatia until 2004 showed fluctuating trend, when they started to increase. Inflows from EU-25 to Croatia in 2005 rose to EUR 1 128 million by 89% and in 2006 to EUR 1 548 million by 37%. Since 1999, Croatia has started some initial, small privatization and there has been some recovery in infrastructure and domestic production. From 1999 to 2004 major privatizations particularly in banking, energy, telecommunications and transportation were completed, which had a positive effect on FDI inflows from into Croatia.

 

In the period from 2001 and 2006 the bulk of the investment from EU came from the EU-15 countries. In 2006 out of the sum of EUR 11.8 bn invested, the new Member States invested EUR 2 bn and from EU-15 flew EUR 9.8 bn in.

 

From 2004 to 2006 French FDI accounted for 34% of the EU FDI in Croatia. Austria was the second with 24% and with 13% Hungary was the third largest EU investor. France, considerably increased its investment in 2006 (more than EUR 1 bn), making it the major investor. One contributory deal in 2006 that can be mentioned is the acquisition of the HVB Splitska Banka dd by the French Societé Générale SA. Austria was the major EU investor in Croatia in the years

 

2004 and 2005, but a disinvestment of EUR 113 million was recorded in 2006. 2

 

EU-27 FDI flows to Croatia by EU Member State

 

Outward FDI

 

The level of Croatian FDI outflows into the EU is very modest, reaching EUR 974 millions in the year 2006. The FDI outward stocks in the new EU Member States fell to 84% in the year 2004 and to 52% in the year 2005. In 2006 the outward stocks increased to 70% share in Croatian in the new Member States stocks (EUR 680 million). The main EU target country of the Croatian outward FDI from 2004 to 2006 was Germany.2

 

Patterns of the FDI

 

Due to Croatia’s involvement in the conflict connected to the collapse of the Former Yugoslavia, Croatia was unsuccessful in attracting FDI. Up until 1998

 

Croatia received only small amounts of FDI inflows mostly related to privatization. During that period foreign investors privatized some of the most successful manufacturing enterprises. As a consequence, more than 70% of total FDI was accounted to manufacturing in 1990-1998.

 

From 1999, annual FDI inflows to Croatia achieved about EUR 1 billion or more. The majority of this FDI was related to privatization in the financial services, services sectors and telecommunications. This also integrated Greenfield investments into the retail and wholesale trade sector. The share of manufacturing FDI in the period from 1999 FDI fell to just 20%. 3

 

Mergers and Acquisitions vs. Greenfield

 

From 1993 to 2005, the share FDI inflows related to privatization was about 46%, although this percentage increased above 60% when ‘other acquisitions’ were added (this category refers mainly to acquisitions of already privatized firms). Greenfield investment mainly went into financial intermediation, retail and wholesale trade.

 

In the year 2005, Greenfield investment was EUR 780 million. This investment went largely into the services sectors, the export oriented manufacturing sector got just small share. In the services sector the Greenfield investment concentrated on trade and financial intermediation, which accounted from 1993 to 2005 for more than half of total Greenfield reinvested earnings and equity investment. Greenfield investments in the manufacturing sector were mostly in the manufacturing of textiles and manufacturing of ‘other non-metallic mineral products’ (construction material).

 

While M&A firms mitigate the huge foreign trade deficit of the country, the Greenfield foreign investment enterprises (FIEs) contribute to it over-proportionately. The reason for this surprising behaviour of Greenfield FIEs is to a considerable extent structural. Greenfield FIEs are mostly active in trade and in other services sectors that are responsible for the deficit. The manufacturing Greenfield firms are too small and there are too few of them to generate trade surpluses. Access to foreign markets was not improved much by the FDI, and the domestic sourcing by foreign supplies was not replaced.

 

By looking at the changes of the employment in the newly established Greenfield firms in the 4th to 6th years after establishing and if we compare this with those of the privatized companies in the same time period after the foreign takeover, we find an employment increase in both types of companies but there are higher dynamics in the case of Greenfield firms. According to the graph the smaller M&A firms are developing better than the larger ones.3#p#分頁標題#e#

 

Institution-based Attractiveness

 

Croatia’s weakness stems overall from excessive government interference which erodes the economy’s flexibility and efficiency. Non-transparent and burdensome administrative regulations continue to challenge entrepreneurs particularly at the local level which results in lower levels of job growth and productivity. Political interference and corruption restrict economic freedom particularly regarding to the judiciary.

 

Foreign investors are given national treatment. But despite the economic and administrative reforms, there is still inefficient bureaucracy. Corruption is still problematic. From the side of EU there is pressure to increase transparency and to fulfill commitments to adopt the laws, norms, and practices of the EU. The judicial system is viewed as most affected by the corruption. The court system is inefficient and cumbersome, and backlogs are a cause for business disputes to going on for years. 1

 

Case Study Bulgaria

 

Bulgaria is a small economy with a population approximately 7.97 million. It is a full member of EU from 2007, thus its laws governing FDI inflows are in line with regulations of the EU. Bulgaria is also member of WTO and adheres to the TRIMS Agreement. 3

 

Due to the global financial crisis its GDP contracted by 5.1% in 2009- it was the first decline in the GDP growth since the crisis of 1996/97. 7

 

Bulgaria started its transition process from a centrally planned economy to a market economy with privatization programs in 1990s. During the boom years, the economy expansion was primarily driven by the non-tradable sector which included banking, real estate and construction. The role of these sectors to the growth of the GDP is expected to be low. The GDP growth can recover its prior strength only if the tradable sector takes over.7

 

Inward FDI

 

More than 75%, of the FDI inflows to Bulgaria comes largely from within the EU. From within the region Greece has invested almost quarter of a billion US dollars into Bulgaria between 2000 and 2005. 1

 

Bulgaria together with Romania has become particularly attractive. In 2006, they received €15.2 out of €27.8 Bio which flew into the SEE countries. 2

 

The FDI inflows, after increasing progressively in recent years, slowed considerably in the year 2009 due to the global economic and financial crisis. According to the preliminary data from the Bulgaria National Bank, FDI for the period between January and September 2009 was EUR 2.1 billion in contrast to the 5.1 billion for the same period in 2008. 3

 

Outward FDI

 

FDI outflows from Bulgaria have been extremely low (only US$ 10 million in the year 2001).4

 

This increased to EUR 465.5 million for the time period January - October 2008. And in the same period of time in the year 2009 the outflows have been only EUR 96.2 million. The outflows in January 2010 decreased from EUR 7.9 million in January 2009 to EUR 1.9 million.5

 

The Patterns of FDI

 

Until the end of the year 1996, the level of interest to invest in Bulgaria has been insignificant, particularly compared with the processes in other post communistic European countries. The privatization process was in its first stage. The privatizations by FDI that had been realized were not significant and part of the FDI flows in this time period had an illegal origin.

 

From 1997 until 2000, the progression of economic restructuring has started. The opening of the market and the mass privatization program increased the FDI flows significantly with a yearly average of 770 million USD, which was compared to the first period more than five times higher. Although the FDI inflows increase, FDI per capita was still low in contrast to the figures of other central European countries that were in transition.

 

Between 2001 and 2004 the trend in Bulgaria was towards the stabilization of the industrial development. This process can be connected to the substantial improvement in the general economic environment which happened in Bulgaria after 2000.The stabilization of the macro-economic structure, the restitution of agricultural lands and the privatization of long-term assets on large-scale have both been completed. Although the possibility to invest into the privatization process was exhausted, total inward FDI increased to an annual mean of more than $1bn. 1

 

This increase in FDI held until the year 2009, where due to the global financial crisis the inflows dropped.

 

Mergers and Acquisitions

 

Through M&A, large international operators have played an increasing role in the Bulgarian market.8

 

Investors from the UK, US, Australia and Ireland increased their investments in Bulgaria and Romania in 2006. In 2006 46 transactions were completed, compared to 28 deals in the year 2005. Out of 43 transactions by the investors from UK and US, 17 were completed in Bulgaria.

 

The completion of privatization of state-owned banks attracted foreign banks as strategic investors. To the Bulgarian banking industry were drawn investors including UniCredito Italiano SpA, KBC, BNP PARIBAS, National Bank of Greece, Bank Austria Creditanstalt, Societe Generale, OTP Group, Raiffeisen International, American Life Insurance Company - Consolidated Eurofinance Holdings, Citibank, and Regent Pacific Group. 9#p#分頁標題#e#

 

In 2007 Nova Television Bulgaria has been bought by a Swedish company Modern Times Group MTG AB from a Greek company Antenna Group for EUR 620 million.