Strategies related to the positive contributions of the foreign direct investments.

Ivan, Mihail Vincentiu ; Iacovoiu, Viorela

1. INTRODUCTION

Within the European integration, the new member states are facing a major decision, namely choosing the right path to follow. The choice involves not only setting the objective, but also identifying the directions in view of reaching the target and drafting a unitary and coherent strategy. This must proceed from a realistic evaluation and a proper, directing of the existing potential, capitalizing in the same time the opportunities given by the EU integration. Taking into consideration the insufficiency of the internal resources, the own efforts targeting a competitive production can be intensified and completed by attracting foreign direct investment (FDI) inflows, especially towards the intensive activities within the capital and technology areas, generating a bigger value added. Although obvious, this scenario is not easy to accomplish. Moreover, practice pointed out that although "desired", the FDI positive contributions are not always effectively "achieved" due to the lack of a unitary, coherent and realist strategy, based on the objective analysis of the host country definite conditions and the characteristics of foreign capital inflows. Consequently, a major issue is raised: What are the characteristic elements of some strategies that encourage the manifestation of the FDI positive contributions?

2. THEORETICAL ASPECTS

The literature distinguishes three sets of foreign direct investments, as per the reasons the economic agents (especially the transnational companies) achieve investments abroad: market-seeking investment, resource-seeking investment, and efficiency-seeking investment (Dunning, 1994). In our opinion, this distinction is based on identifying certain primary motivations, namely transnational corporations (TNC) strategic imperatives, according to which the foreign investor targets certain essential attributes of the host country (table 1).

The international investment motivations registered alterations following the changes that affected the world economy, respectively trade liberalization, competitiveness growth, telecommunication and information technology development, increasing globalization.

The TNC motivations migrated away from the access to local resources and the reaction regarding the local markets protection towards competitiveness related-issues (costs and efficiency), the access to strategic actives (research-development capabilities) and to the liberalized markets. Recent research reveal that, although the market growth (market-seeking) and the cost of the production factors (the efficiency-seeking) are the main motivations of the multinational companies to invest in Central and Eastern Europe (Manea & Pearce 2004), an increased importance is granted to the access to information and the infrastructure (transport, telecommunications) degree of development (Pournarakis & Varsakelis 2004).

John Dunning and Michael Porter, developing the theories concerning the investment development path and the competitive advantages stages, underlined the importance of proper strategies in accomplishing the migration from the competitive advantage based on the production factors endowment to the creation of specialized production factors. In this respect, we consider suggestive the empirical data concerning the development of the CEE countries competitive advantages by means of attracted FDI contributions.

3. EMPIRICAL DATA

The foreign direct investments have been thought as "a new Marshall plan" for the CEE countries. The extent to which that plan seemed realistic, materialized in positive effects once applied, is given by the success of the CEE countries in strengthening their competitive advantages, namely improving the quality of the existing production factors and the developing several competitive advantages based on specialized factors.

In this respect, empirical data regarding the Global Competitiveness Index (GCI) emphasizes the fact that only few states, new members of European Union, registered notable successes in what concerns their economic competitiveness (table 2).

In the hierarchy of the 125 countries analyzed in the Global Competitiveness Report (2006), Estonia, which, at the level of year 2005 had already accumulated a significant FDI stock (over 90% of GDP) ranks 25 (the level of GCI is 5.12) before some traditionally developed countries, old EU members (Spain, Portugal and Italy). A quite promising position is also occupied by the Czech Republic (rank 29) that overtaking countries such as Portugal, Italy, Greece and South Africa, this country also receiving considerable FDI inflows as well as Hungary and Slovakia which occupy honorable places, 41st and 37th , out of the 125 analyzed states. In the same time, Slovenia that attracted FDI inflows comparatively lower occupies place 33rd (the level of GCI is 4.64) overtaking the majority of CEE countries which demonstrates that, the quality of the foreign direct investments is essential in order to maximize the positive contributions of foreign capital inflows.

The presented empirical data emphasize the existence of a strong relationship between the FDI inflows registered by the CEE countries and their level of competitiveness. Thus, the states that have accumulated a significant stock of direct foreign investments (Estonia, Hungary and the Czech Republic) have also registered the highest levels of competitiveness, alongside with Slovenia, while the countries disfavored in what concerns the infusions of capital (Romania and Bulgaria) rank the last regarding their economic competitiveness as well.

We have to underline the cases of Slovenia and Hungary that register big discrepancies between the two variables. Thus, Slovenia occupies place 5th in what concerns the level of FDI inflows, registering a much better position with respect at its economic competitiveness (rank 3). Also, Hungary placed on the second position in what concerns the FDI inflows occupies a lower rank (5) in respect with the level of GCI.

Except for the aspects related to the index calculation (for example, Hungary fell 6 positions during 2006 as opposed to 2005, due to the deterioration of the macroeconomic climate) we consider that the disparities recorded in Hungary and Slovenia, as well as the other analyzed countries are mainly due to the applied strategies that influenced both the quantity and the quality (structure) of the attracted FDI, determining their impact on the economic and social environment.

Considering the presented theoretical aspects, we appreciate that along the process of turning the Central and East European Economies into functional markets, the quality of the FDI inflows came as a condition for advancing towards the stages in which the investments and the innovative capacity represent the development engine. Consequently, the countries inside which the attracted FDI completed, at a certain point, their quantity, gained leading positions concerning their economic competitiveness. Within these countries, Slovenia marks a particular case as from the very beginning has followed the qualitative aspects of the FDI inflows (namely attracting Greenfield investments), targeting their impact on the local competencies. Therefore, although if reported to received foreign capital places behind most of the analyzed countries, as concerns competitiveness, Slovenia surpassed most of them (ranking after Estonia and the Czech Republic) due to the increased quality FDI impact achieved within the economy. So, the states inside which the act of attracting FDI has been assumed as a priority, namely Estonia, Hungary, the Czech Republic, Slovakia and Slovenia, materialized in promoting realistic and coherent policies based either on attracting massive FDI inflows (Estonia, Hungary, the Czech Republic and Slovakia), or on the qualitative aspects (Slovenia), strengthened the competitive advantages, successfully advancing towards the competitive advantages stage, based on innovation, typical of the developed economies.

4. CONCLUSION

The theories point out that the FDI potential positive and negative contributions to the receiving economy vary according to the FDI type, maturity, country of origin, also depending of the characteristics of the host country.

Taking into attention the positive evolutions registered in the last years, in European integration context, we consider that, in Romania, as well as the other CEE countries (e.g. Estonia, Hungary, the Czech Republic, Slovakia and Slovenia), the massive penetration of the foreign capital mostly oriented towards the activities that incorporate a higher content of local resources and most of all, technology and knowledge, could encourage the improvement of the existing production factors quality and the creation of specialized production factors.

In this respect, we appreciate that the long-term development strategy has to be oriented toward the improvement of the human and technological capabilities, through application of some measures, such us: the increase of the investments targeting educational and research activities; the stimulation of local initiative; the stimulation of local companies to invest in activities engendered higher value added; the stimulation of clusters development.

Consequently, considering the here above presented aspects, we appreciate that the maximization of the FDI positive contributions implies the promotion of adequate policies, oriented towards an intelligent use of the foreign capital inflows as a development strategy instrument.

5. REFERENCES

Dunning, J.H.(1994). Re-evaluating the benefits of foreign direct investments. Transnational Corporations, Vol.3, No.1, February 1994, pp.18-20,

Manea, J.& Pearce, R.(2004). Industrial restructuring in economies in transition and TNCs' investment motivations. Transnational Corporations, Vol.13, No.2, August 2004, pp.12-16

Pournarakis, M.& Varsakelis, N.(2004). Institutions, internalization and FDI: the case of economies in transition. Transnational Corporations, Vol.13, No.2, August 2004, pp.90-92

***Global Competitive Index--Report 2006. World Economic Forum, New York

***World Investment Report 2003: FDI Policies for Development: National and International Perspectives. UNCTAD, New York and Geneva

***World Investment Report 2006: FDI from Developing and Transition Economies: Implications for Development. UNCTAD, New York and Geneva

Tab. 1. Foreign direct investments typology--synthesis

FDI types Main investment Main characteristics
 motivations of host country

Market-- --to establish a strong --the national market
seeking position in the market potential;
 of the host country; --economic
 --to achieve access to integration
 a new regional (internationalization).
 market.

Resource --to achieve access to --availability of
--seeking natural and human natural resources ;
(Strategic resources --the skill quality of
asset- --to achieve access to production labor.
seeking) national research and --availability of
 technological scientific knowledge;
 expertise/capabilities --the level of
 development of
 innovation and R&D
 activities.

Efficiency --access to low-cost --availability of low-
--seeking input factors (in order cost input factors
 to improve the (labor, energy, raw
 group's materials)
 competitiveness)

Tab. 2. The inward FDI stock/capita and the GCI (2006)

 Inward FDI
 stock/capita
 (2006)

 USD/ Rank
Countries capita

Estonia 9,451 1
Hungary 8,095 2
Czech 7,557 3
Republic
Slovakia 5,627 4
Slovenia 3,726 5
Poland 2,715 6
Bulgaria 2,682 7
Romania 1,897 8

 Global Competitiveness
 Index
 (2006)

 Rank Rank
Countries Score (global) (CEE)

Estonia 5.12 25 1
Hungary 4.52 41 5
Czech 4.74 29 2
Republic
Slovakia 4.55 37 4
Slovenia 4.64 33 3
Poland 4.30 48 6
Bulgaria 3.96 72 8
Romania 4.02 68 7