Academic journal article Journal for East European Management Studies

Consequences of Convergence - Western Firms' FDI Activities in Central and Eastern Europe at the Dawning of EU-Enlargement*

Academic journal article Journal for East European Management Studies

Consequences of Convergence - Western Firms' FDI Activities in Central and Eastern Europe at the Dawning of EU-Enlargement*

Article excerpt

Comparing all kinds of market entry, foreign direct investment (FDI) appears to be the most appropriate mode of foreign market. So called Market seeking FDI can be differentiated into those activities primarily aiming to realise psychic market proximity and into those activities mainly undertaken to realise physical market proximity. This differentiation is crucial because the number of FDI activities primarily done for reasons of psychic market proximity could decrease due to changes taking place in the CEE as well as an increasing cultural homogeneity. These tendencies give (a) MNEs already operating in CEECs for reasons of psychic market proximity potentials to restructure their current activities in the region and (b) MNEs striving to establish market presence in CEECs the possibility to consider modes of foreign market entry, which are less capital intensive than FDI like exporting.

Wenn man alle Markteintrittsformen vergleicht, erscheinen FDI als die beste Art des ausländischen Markteintrittes. Sogenannte marktsuchende FDI können unterteilt werden injene, die eine psychische Marktnähe anstreben und solche, die eine physische Marktnähe realisieren wollen. Diese Unterscheidung ist wichtig, da die Zahl der FDI-Aktivitäten, die auf eine psychische Nähe zielen, abnimmt und es zu einer zunehmenden kulturellen Homogenität in MOE-Ländern kommt. Diese Tendenzen geben a) MNUs, die schon in MOE-Landern sind, aus Gründen der psychischen Marktnähe, die Möglichkeit, ihre Aktivitäten umzustrukturien und b) MNUs, die einen Markteintritt beabsichtigen, andere Formen anzuwenden, die weniger kapitalintensiv als Fdi sind wie der Export.

Keywords: EU accession/ Central and Eastern Europe / cultural convergence / foreign direct investment / subsidiaries of MNEs / foreign market entry mode

1. Inward FDI as an Essential Backing of the Processes of Transition and Integrationin Central and Eastern Europe1

Foreign direct investment (FDI) is a crucial component in the transition processes taking place in Central and Eastern European countries (CEECs). FDI does not only provide scarce financial capital for the highly indebted transformation economies (Black/Moersch 1997; Manea/Pearce 2001b), but also leads to a cross boarder intraorganisational transfer of knowledge, managerial as well as marketing skills, technology, entrepreneurship, international market access (Manea/Pearce 2001b). In addition, FDI "promote[s] the diffusion of new technologies through direct linkages or spillovers to domestic firms" (Altomonte/Guagliano 2001:4). Mickiewicz et al. specify this point: "(...) FDIs have strong influence on domestic employment through types of jobs created, regional distribution of new employment; wage levels, income distribution, and skill transfer" (Mickiewicz et al. 2000:5). Kaufmann and Menke (1997) estimate the creation of 300.00 jobs in the Visegrád states by German capital invested. Hence, FDI can be seen as an essential support for transforming the political and economic systems of these countries into democracy and market economy (Resmini 2000; Lankes/Venables 1996, Bevan et al. 2001).

In the meantime, these processes of transition have reached an advanced stage in many CEECs. prices have been liberalised, the privatisation of formerly state-owned enterprises has rapidly progressed, and the once closed economies have opened themselves to foreign trade and investment in many of these countries. Therefore, the integration into the European Union is close at hand for a number of Central European countries. Political negotiations and decisions inside the European Union as well as in the Eastern accession states have thus far lead to overwhelming results in favour of Eastern enlargement.This results in turn imply that the Central European countries Hungary, Czech Republic, Slovakia, Poland, Slovenia, Estonia, Latvia, and Lithuania (together with Cyprus and Malta) will gain member status in May 2004.

Despite these developments, however, academic knowledge concerning the implications of the described processes for foreign direct investment into these countries up to now appears to be rather scarce. …

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