Influence of Foreign Direct Investments on Supply Chain Management: Insights from Russian and Ukrainian Agri-Food Business

By Belaya, Vera; Gagalyuk, Taras et al. | Management & Marketing, April 1, 2012 | Go to article overview

Influence of Foreign Direct Investments on Supply Chain Management: Insights from Russian and Ukrainian Agri-Food Business


Belaya, Vera, Gagalyuk, Taras, Hanf, Jon Henrich, Management & Marketing


Abstract. The recent developments of Russian and Ukrainian economies and rapid growth of food industries have proven to be one of the key motives for international companies to enter these countries and stirred up active investments into the food sector. It is observable that when foreign food retailers and branded food processing companies enter a new country, they take their business models known from their home countries into the newly entered markets. In this context of particular importance are management concepts such as supply chain and chain quality management concepts. Therefore, our aim is to analyze the influence of Foreign Direct Investment (FDI) on the Russian and Ukrainian agri-food business. Our findings indicate that the interactions of foreign food retailers and branded food processing companies with local suppliers and buyers indeed have an impact on the development of supply chain management in Russian and Ukrainian food sectors. There is a tendency that Russian and Ukrainian business partners change their old business approaches formed under the Soviet system by e.g. improving the quality and delivery terms and increasing the diversity of their product range, etc. and copy Western business principles introduced by foreign companies. One can observe the influence of FDI on supply chain management at all stages of the supply chain.

Keywords: Foreign Direct Investment (FDI), Supply Chain Management, Central and Eastern European (CEE) countries, Russian and Ukrainian agri-food business.

1. Introduction

Despite the fact that the majority of business transactions are being are being coordinated via arm-length transactions, verticalization is an important and growing phenomenon in the agri-food chains of Central and Eastern European Countries (CEEC) (Swinnen, 2006). A further important driver of verticalization can be seen in the growing importance of foreign investors and their demand of higher quality (Swinnen, 2006). Foreign Direct Investments (FDI) can be found at the farm and processing levels as well as in the retail sector (Stange, 2010). For example, in 2008, FDI in Ukrainian agriculture were about USD 0.8 billion, whereas they accounted for USD 1.8 billion and USD 3.6 billion in the food processing and the retail sectors, respectively. The indicator of USD 0.8 billion for agriculture may be perceived as rather low compared to the FDI indicators for food processing and retail. However, one should notice that the world total of agricultural FDI accounts for 3.3 billion US dollars (UNCTAD, 2009) and, thus, the share of Ukraine is not that small. Overall, even during the world financial crisis, East-European countries have demonstrated a positive trend with regard to FDI inflows. In 2008, FDI increased by one eighth as compared to 2007, and Russia, Ukraine and Kazakhstan accounted for 84% of that growth (UNCTAD, 2009).

It is observable that the foreign enterprises export their own business concepts into CEEC. Several studies on the effects of FDI in CEEC (Palmer, 2005; Roberts, 2005; Hanf and Pieniadz, 2007; Glaser-Segura, 2010) show that foreign investors are working hard to raise the level of quality of their suppliers in order to meet their own global quality requirements. Further on, foreign companies impose high (global) private standards to differentiate their products from those of the competitors, i.e., standards work as strategic tools (Swinnen, 2006).

No wonder that Russia attracts foreign investors and companies who are willing to expand in Russia. It has been among the world leaders in terms of the pace of economic growth in the past seven years. Low maturity and saturation of the Russian market makes it attractive for global players. In spite of the financial crisis and freezing of some projects, such international retailers as Metro and Auchan are successfully operating in Russia and Ukraine.

As for international manufacturers, such companies as Danone, Campina and Mars run their production facilities in Moscow suburbs and other large regions of the country. …

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