Emergence of FDI in CEE and its effects on Food supply

Dimuth NambugeAssistant Professor

Department of EconomicsSlovak University of Agriculture Nitra

dimuth.nambuge@fem.uniag.sk

Foreign Direct Investment

What Foreign direct Investment? Key terminology is – the “controlling interest” in

a foreign company. Does not need to be 100% ownership.

Importance of FDI Host country Ownership country

Factors to consider when entering a foreign market as direct investment

P - Political E - Economical S - Social T - Technological L - Legal E - Environmental C - Cultural

CEE economic reforms

Spontaneous privatization 1989 - 1991 Privatization 1992 - 1995 Concentration begins 1996 - 2000 Accelerated concentration 2001 -

Spontaneous privatization 1989 - 1991

The period of spontaneous privatisation happened in 1989-1990, when the smaller shops were privatised, but when a significant number of private shops were established as well. Therefore the number of food retail shops started to grow.

Prior to the period food chains were vertically Integrated

Acquisitions and joint ventures in core products groups

Privatization 1992 - 1995

During the period of privatization (from 1991 to about 1995-96) the owners of the larger food retail chains have been changed. Most of the shops in the favourable areas have become the properties of multinational chains.

Some SME’s developed Some were bankrupt Large western companies concentrated on post

acquisition issues; Distribution, brand positioning, pricing strategy

Concentration begins 1996 – 2000Accelerated concentration 2001 -

During this period number of self employed shops grew up.

Rationalization of manufacturing/ market strategy for “NEW EUROPE”

Transition period and entering these markets

Transition period (1989- 1995) negative GDP growth.

Higher level of poverty and unemployment. Entry costs were minimum Entered mainly through acquisitions. Anti dumping policies

Comparative market entry in different regions

North

America

(300milli

on populatio

n

•Major brands well established•Maximum economy of scale•Costly advertising campaigns•Mature markets•Expensive listing costs

Western

Europe

(350 milli

on populatio

n

•Major brands well established•Maximum economy of scale•Costly advertising campaigns•Mature markets•Expensive listing costs

Eastern

Europe

(400 milli

on peopl

e)

•Most deals for 25 – 70 percent market share in major product groups have been attained to 3 to 40 billion dollars

Benefits from FDI

Knowledge spill over High quality standards (ISO 22000 series) High safety standards (HACCP) Technological Transfers Production line efficiencies Increased yields through reserach Environmental concerns

Current situation of FDI in CEE

Tax holiday incentives Government and EU grants Buyouts of small farms

Investment announcements in the CEE region (number of projects)

Source: FDI markets, Financial Times, 2009, January

PERSPECTIVES AND IMPLICATIONS FOR POLICY-MAKERS OF THE

RESTRUCTURING OF SUPPLY CHAINS

Wholesale markets Market Information Systems (MIS) Measuring International Competitiveness Improving market access to the supply

chains of multiple retailers Human Capital Improving access for small farms Stimulating intermediary organizations and

marketing cooperatives

Conclusions

Discuss