Leeds University Business School Alumni seminar in Athens Saturday, 4 April 2015 ‘(The lack of)...

Leeds University Business School

Alumni seminar in AthensSaturday, 4 April 2015

‘(The lack of) Foreign Direct Investment into Greece’Dr Christos Antoniou, Research FellowLeeds University Business School


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Do we all know what FDI actually is?

• The investment of an internationalising firm into full (or partial) control of assets in another country

• IT IS NOT the mere serving of a foreign market, it includes a flow of capital from the home, to the host country, i.e.,

• It implies risking scarce financial resources in a market other than the own domestic one


Some (often neglected) Trivia

• When discussing Investment we are referring to (a rather limited) pool of entities that either possess, or have access to financial resources

• These entities should have developed the abilities to spot opportunities and should have the know-how to operationalise these

• These (very few) entities have limited resources, so they consider the optimum allocation of these resources aiming atachieving the highest return

• These entities are directly accountable to their shareholders and indirectly to their stakeholders


Why is Investment important for a Country?

• A Government’s Goal (in an ideal world) is to increase the welfare of its citizens

• Improved public welfare requires resources, and Governments are in dire lack of available resources

• Improved private welfare requires employment and entrepreneurial capacity

The above can only be generated in a sustainable way by entities that trade off risk against above-average

return (and the State is not of them!)


What can Investment offer?

• One-shot-off capital influx (through acquisition of assets)

• Increase in the Stock of an Economy (adding productive capacity)

• Generation of employment (to operate the additional capacity)

• Steady flow of income for the State in the form of taxation of activities

• Indirect effects on domestic enterprise through spill-overs of knowledge and inter-firm linkages


Why do firms internationalise?

• Market seeking (assumes a sufficiently large domestic market interested in the firm’s products and services)

• Efficiency seeking (taking advantage from host-market characteristics not found in the home market)

• Resource seeking (securing access to resources exclusively available to the host country)

• Strategic Asset seeking (securing access and availability of assets of strategic importance to the core activities of the internationalising firm


Internationalisation modes available to firms

• Exporting

• Licensing (with franchising being a sub-category)

• International Joint Venture (IJV)

• A merger or acquisition of an existing firm (M&As)

• Greenfield Investment (through either a wholly-owned subsidiary –WOS, or an IJV


Some basic Options in a nut-shell


Privatisation (and-) or De-regulation?

• Privatisation – A State-monopoly coming under private control (replacing an inefficient monopolist with a hopefully more efficient one)

• De-regulation – Opening up of sectors and industries to more competition (hoping to increase efficiency and reduce prices)

We can have privatisation without de-regulation, and we can have de-regulation without privatisation!


The down-side of Privatisation and De-regulation

• Diminishing State control over commercial activities that may threaten national sovereignty

• Diminishing State income of commercial activities the State is retreating from

• Difficulty in assuming regulatory role in a pro-active way, since the private sector will constantly innovate to by-pass regulations

• Inability to capture the full extend of the activities of internationalising firms due to the asymmetry in the flexibility between the State and business


What to do?

• Increase the attractiveness of a country– Emphasise the competitive advantages and target firms that value

them – Reduce the risks associated with operating in the domestic market– Solidify the cross-border collaboration to effectively counter the

increased flexibility of internationalising firms– Assume a role for the State

• PPPs?

• Facilitate the spill-overs of the tangible and intangible assets, such as technology, managerial know-how and innovation of internationalising firms into the local economy


The case of Regus: an innovative way to foster entrepreneurship and establishing links

• A multinational firm of British origin offering flexible office solutions

• Expanding its operations in Greece by opening Business Centers in areas of commercial interest

• Facilitating start-ups and seeking to establish links with organisations promoting entrepreneurship– Invests in setting-up business centers– Generates employment by hiring staff for support functions– Contributes to a network of supportive service provision for both

Greek and international firms operating in the domestic market– Generates tax revenue for the Greek State


In Conclusion:

• The macro-level matters, but it is micro-level where action can have a real impact

• The macro level is given, very little can be done about it• http://www.economist.com/content/global_debt_clock

• We need to be pragmatic about the our position– The Greek market cannot provide the financial resources required for

positively impacting welfare– Those who have the financial resources also have many more

investment options available to them, so in order to attract them we need to effectively address their requirements

– We need to make sure we secure the long-term perspective of financial resources’ flows and not compromise the future welfare for short-term gains


To take away with you (Food for Thought, before the actual food):

• How do some of the more widely debated FDI cases of recent times In Greece fit into our discussion?

– The OLP acquisition from Chinese firm COSCO– The privatisation of regional airports’ operations and the offer of

airport operator FRAPORT?– The acquisition of the Hotel Complex ASTERAS VOULIAGMENIS

by a Turkish hotel operator?

And last but not least:

– The HELLENICON project as masterminded by the Consortium of LAMDA Development with Arab and Chinese financial backing?


Thank you very much…

και

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