Corresponding author: Wladimir Andreff ( andreff@club-internet.fr ) © 2017 Non-profit partnership “Voprosy Ekonomiki”.
This is an open access article distributed under the terms of the Creative Commons Attribution License (CC BY-NC-ND 4.0), which permits to copy and distribute the article for non-commercial purposes, provided that the article is not altered or modified and the original author and source are credited.
Citation:
Andreff W, Andreff M (2017) Multinational companies from transition economies and their outward foreign direct investment. Russian Journal of Economics 3(4): 445-474. https://doi.org/10.1016/j.ruje.2017.12.008
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Multinational companies (MNCs) based in 26 post-communist transition economies (PTEs) emerged during the 1990s. Their outward foreign direct investment (OFDI) boomed dramatically from 2000 to 2007 in these countries, and then muddled through the financial crisis and great recession at difference paces on different paths. This difference is revealed in a sample of 15 PTEs for which data are available from 2000 to 2015. Most of these economies appear to be on the brink of moving from the second to the third stage of Dunning's investment development path. The geographical distribution of their OFDI favors host countries located in other PTEs, developed market economies, and tax havens while their industrial structure is more concentrated on services rather than on manufacturing and the primary sector. PTE-based MNCs primarily adopt a strategy of market-seeking OFDI. Econometric testing shows that push factors are major determinants of OFDI. The results demonstrate that OFDI is determined by the home country's level of economic development, the size of its home market, and its rate of growth as well as technological variables: OFDI decreases with an increase in the number of scientists in the home economy and with an increase in the share of high-tech products in overall exports, exhibiting a negative technological gap. A lagged relationship between OFDI and previous inward FDI suggests that Mathews’ linkage-leverage-learning theory is relevant in the case of PTEs.
outward foreign direct investment, multinational companies, post-communist transition economies, investment development path, linkage-leverage-learning, push factors
Multinational companies (MNCs) based in 26 post-communist transition economies (PTEs) emerged about twenty-five years ago in the wake of the transition to a market economy. This study attempts to analyze the emergence, development, major features, and determinants of outward foreign direct investment (OFDI) by MNCs originating from PTEs. While the scope should cover all 26 PTEs, this study focuses on a sample of only 15 countries due to non-comprehensive data and rather small OFDI flowing from 11 PTEs. OFDI from PTEs decreased due to the financial crisis and great recession after 2007. This study analyzes the emergence of their OFDI, MNCs, and characteristics; they vary markedly depending on the PTEs’ OFDI home countries. Their major strategy is market-seeking, while a significant part of MNCs’ expansion from PTEs occurred through cross- border mergers and acquisitions (M&As).
The theoretical background in this study is John Dunning's (Dunning,
During the 1980s, 14 countries were centrally planned economies with a communist regime: Bulgaria, Cuba, Czechoslovakia, the German Democratic Republic, Hungary, Mongolia, Poland, Romania, the USSR (15 republics), and Vietnam as CMEA (Council for Mutual Economic Assistance) members, and Albania, China, North Korea, and Yugoslavia (6 republics) as non-CMEA members. Usually, the so-called socialist-orientated developing countries
Consequently, the PTE sample comprises of 26 countries, including Russia and Vietnam (Appendix): 10 PTEs that joined the EU in 2004 and 2007, 9 former Soviet Union republics,
Finally, all 15 countries kept in the sample held OFDI stock of at least $300 million in 2015 (Albania with the lowest), with a maximum of $252 billion for Russia in the same year. The second check is that data for all 15 countries are available for all variables considered in the econometric testing.
The prehistory of OFDI from future PTEs began in the 19th century with Russia and some Central European countries, from which companies like the Czechoslovak Bata or the Hungarian Tungsram and Medicor started investing abroad in the interwar period. OFDI from Soviet and Central Eastern European countries never entirely vanished during the communist era, even though it remained quantitatively limited, as assessed below.
From 1881 to 1914, Russia was a FDI net importer, as it was not developed enough as an economy to significantly invest abroad. In 1913, inward FDI amounted to 553 million RUB and was markedly larger than the OFDI in the balance of payments (
In the wake of Brezhnev's economic reforms, central foreign trade organizations were allowed to invest abroad from the USSR and other CMEA countries. An accepted estimate of OFDI by all CMEA countries (
A 1987 decree adopted by the Council of Ministers of the USSR re-opened the country to joint-ventures with foreign partners, allowing them to take a maximum 49% share in Soviet firms, followed with another decree (1989) and a law (1991) that definitely allowed inward FDI by foreign investors without restriction. This legislation, kept by the Russian Federation, was a preliminary condition for foreign countries to accept OFDI from Russian firms. The same process emerged in Central and Eastern Europe with earlier opening to inward FDI in Yugoslavia (1967), Romania (1971), Hungary (1972), Poland (1976), and all other CMEA countries between 1986 and 1992. In a sense, this was a launch pad for their coming OFDI.
From 1990 to 1993, two opposite series of facts emerged. The first was the disintegration of the CMEA and the break-up of the former Soviet Union. OFDI from Central and Eastern European countries (CEECs) and from the newly independent states (the Commonwealth of Independent States (CIS) countries) was reduced to practically nothing in 1991–1993, according to UNCTAD data that exclude capital flight. Former red multinationals faced constraints that dried up their liquidity and their capacity to finance their subsidiaries abroad; the latter, which were under-capitalized, could not survive without new capital transfers from parent companies between 1990 and 1993. In its early years, the transition process boiled down to attracting foreign investors (not with much success), while legislation was even less favorable toward outward FDI for fear of “crown jewels” being transferred under foreigners’ control through OFDI and due to balance of payments concerns. Public opinion was hostile to OFDI associated with capital flight. The expansion of PTE firms abroad was often interpreted as capital runaway, if not an exodus, toward more friendly and stable, less risky foreign investment climates than the one prevailing during the so-called transitional recession in PTEs (
A second observed fact was that various companies spontaneously emerged as new multinationals, the so-called “born multinationals” (
Then, OFDI from PTEs actually started spreading abroad after 1993 (
Despite fast growth in the early 2000s, the global share of PTEs’ OFDI, or even its share in European OFDI stock, remained modest (
The idea of the roaring 2000–2007s regarding PTEs’ OFDI relies on two series of statistics. First, Russia's OFDI exhibited the swiftest growth internationally, even swifter than other BRICs’ OFDI (
Outward foreign direct investment stock from transition economies: home country distribution.
With the financial crisis and great recession in 2008 and later on, the trend changed dramatically. Russia's OFDI stock fluctuated around a stagnating trend and was nearly of the same magnitude in 2015 as in 2007 (99% of its 2007 value), displaying practically no growth. PTEs’ OFDI stock only multiplied by 1.3 from 2007 to 2015. However, the crisis shock on OFDI is quite different across the PTEs. The most affected, with a slight decrease in their OFDI stock between 2007 and 2015, are Romania, Slovenia, and Russia. Then, the growth of OFDI stock from Estonia and Poland exhibited a marked slowdown. Buczkowski's (2013) claim that Polish OFDI has been only slightly affected by the crisis, and the economic crisis may help Polish entrepreneurs gain entry to foreign markets, even developed markets, in view of boosting their investment abroad, is not incorrect, but more of an overstatement. The same applies to the statement that the impact of the economic and financial crisis on the Ukrainian economy did not prevent Ukrainian fi from making several large investments abroad (
Throughout the crisis, the next biggest investor abroad after Russia is Hungary, with 9% of total PTEs’ OFDI in 2015 followed by Poland with 6.5%, Kazakhstan (5.6%), and the Czech Republic (4.3%), then Azerbaijan, Ukraine, Vietnam, Estonia, Slovenia, and Croatia, while most PTEs have a share below 1% of overall PTE OFDI. In 2015, some PTEs maintain an insignificant OFDI stock: Albania, Armenia, Bosnia-Herzegovina, Montenegro, Romania — or even non-existent (below $100 million) OFDI, such as Kyrgyzstan, Macedonia, and Moldova.
The following examples show that the impact of the crisis on OFDI varies across the PTEs. Starting with Russia, and compared with other BRICs, its OFDI stock was by far the most unstable and the most affected by the crisis, suffering a 20% decrease in 2008, and down again 17% in 2011. However, its recovery was the strongest in the world, with the highest growth rate (74%) in 2010; the 2012– 2013 recovery was milder. Russian OFDI was harshly affected by the crisis with a reduction in its stock value (not only a fall in outflows), due to both divestments from abroad and foreign asset depreciation in 2008. Russian MNCs have been stifled by a lack of external finance. Russian OFDI stock grew again in 2010, fueled by new investments abroad, foreign asset appreciation, and capital flight. These figures show that the crisis entailed a much higher instability in Russia than in other BRICs’ OFDI. The Ruble depreciation since 2014 has brought bad news for further OFDI expansion and partly explains its continuous decline after its peak value in 2013 (Appendix). Russia's sanctions do not target Russian OFDI per se, but in practice, Russia's state-owned enterprises (SOEs) have to account for a country's sanction policy. Western sanctions, in turn, are targeted at roughly 200 Russian citizens and a few dozen firms, including Rosneft, Lukoil, Gazprom, and Novatek and banks such as Sberbank, Gazprombank, and VEB. The indirect impact of sanctions such as a deteriorating Ruble exchange rate and increasing interest rates (that hinder Russian OFDI) could be more significant than a direct effect on Russian firms’ capability to invest abroad (
In Hungary, the global crisis affected OFDI relatively quickly. In 2008, FDI outflows declined by 56%, followed by a modest recovery (5%) in 2009 (
In Slovenia, most OFDI was concentrated in geographically close markets that were hit severely by the recession. Countries of former Yugoslavia hosted 70% of Slovene OFDI stock (
In Ukraine, some of the previous foreign acquisitions together with unfavorable steel prices on world markets caused trouble for Ukrainian investors. In 2009, ISD could not cope with the debts of its foreign subsidiaries; consequently, rather than divert indebted foreign assets, ultimate ISD owners had to sell their controlling stake to a Russian investor. Similarly, Pryvat decided to sell the Alapaevsk steel mill in Russia. The global financial crisis forced Soyuz-Viktan to initiate bankruptcy proceedings both in Ukraine and Russia, where the company held two large distilleries.
These examples show that, since each PTE muddled through the crisis on its own path at its own pace, the crisis’ impact on OFDI is highly scattered in magnitude and variety. In fact, to go further, the analysis should focus on each country, one by one, which is not the purpose of this study. However,
Differences among PTEs are noticeable with respect to where their OFDI stands in reference to the aforementioned IDP model, although they are not striking in terms of geographical distribution and industrial structure.
A country moves from one IDP stage to the next when it breaks through some representative threshold. On the OFDI side of IDP, it is sometimes assumed that an OFDI/GDP ratio higher than 5% and an OFDI stock/inward FDI stock ratio higher than 25% are the hypothetical qualifiers for the third stage of the IDP model (
Comparative features of OFDI from post-communist transition economies (%).
Before 2007, Russia, Hungary, and Slovenia were ahead of the other PTEs regarding OFDI and MNCs according to
With the crisis, Azerbaijan, Estonia, Poland, Romania, and Ukraine regressed according to one of the two criteria. The global crisis, though it affected PTEs unevenly, has been and is still a hindrance to reaching the third stage of IDP model for a sub-sample of 15 PTEs. As
Indirect OFDI is an investment abroad undertaken by a subsidiary of a foreign MNC established in a given host country.
In Hungary, a handful of mainly foreign majority owned, but Hungarian- controlled fi are responsible for the overwhelming majority of OFDI (Antalóczy and Éltető,
Given the available statistical data, it is not always possible to distinguish between direct and indirect intra-CEEC investments. Thus, one of the most important results of empirical studies concerning intra-CEEC FDI links in the region emphasized country differences regarding development in regional FDI and the strength of regional FDI connections, as well as different compositions of indirect and direct OFDI.
The available data (
Geographical distribution of OFDI stock from post-communist economies in transition (%).
The Czech Republic, Slovakia, and Slovenia most significantly invest in other PTEs, then in DMEs, and finally in OTHs. This distribution seems to be stable over time and was not much disturbed during the crisis. A second stylized fact pertains to PTEs that invest primarily in other PTEs, then OTHs, and finally DMEs, which are Hungary, Estonia and Ukraine. A third case is different: Poland, Latvia, and possibly Lithuania
However, during the crisis, some signs of convergence appeared toward a standard OFDI geographical distribution: 1/ DMEs, 2/ OTHs, and 3/ other PTEs. For instance, Czech OFDI partly switched from PTEs to DMEs between 2007 and 2014, while the share of Hungarian OFDI located in DMEs increased, which was detrimental to the share invested in PTEs from 2008 to 2014.
In contrast, Russia's OFDI is more concentrated on OTHs, including a significant proportion of round tripping investment— where, for example, a Russian MNC invests in Cyprus and invests back home in Russia.
Having a high share of OFDI located in other PTEs confirms that Slovenia and Estonia are hub countries for Western MNCs targeting former Yugoslav countries and the Baltic States, respectively. Sweden and Finland are inclined to indirectly invest through Estonia and usually target the Baltic States and some CIS countries (
Kazakhstan's OFDI has spread in a number of CIS economies and Western countries. The inclination to invest in the CIS region is partly due to the greater familiarity with business practices, and some cultural similarities with CIS neighbors. Furthermore, CIS countries share the same recent history of Soviet rule. Studies suggest that developing economies such as Kazakhstan tend to invest in other countries that share similar consumer markets or social and cultural backgrounds (
Consistent with the third IDP stage of development, some major host countries for CEECs’ OFDI are other PTEs, first being other CEECs. Thus, intraCEEC bilateral FDI flows deserve some focus.
Seen from the standpoint of a home country investing in other CEECs, in 2012, OFDI flows first from Hungary to other CEECs, then from Poland and the Czech Republic, and then Slovakia, Estonia, and Slovenia, while Lithuania, Croatia, Latvia, Romania and Bulgaria lag behind as foreign investors in other CEECs. The most important CEE host countries for other CEECs’ OFDI are the Czech Republic, Slovakia, and Lithuania. The Czech Republic is the first host for Poland and Slovakia's OFDI, Lithuania for Estonia and Latvia's OFDI, Estonia for Lithuania's OFDI, Croatia for Hungary and Slovenia's OFDI, Poland for Croatia's OFDI, Slovakia for Czech OFDI, Bulgaria for Romania's OFDI, and Romania for Bulgaria's OFDI. However,
The CEECs attracted less Russian investment than their economic importance would have warranted due to both some reticence in CEE host countries and Russian MNCs’ strategies that do not see the CEE-region as a major priority. According to data from the Bank of Russia, the four Visegrad countries accounted for less than 1% of Russia's OFDI stock by the end of 2012 (
Data about the industrial structure of OFDI, that is, its distribution by industry, are no more reliable than those regarding OFDI geographical distribution, and even more scattered.
Industrial structure of OFDI stock from post-communist economies in transition (%).
Among OFDI in services, a more significant share has been invested in finance and banking from the Czech Republic and Estonia, possibly including some Western indirect investment since foreign banks are dominant in these two countries. A contrario, Polish OFDI (2011) in the services industry splits into scientific and technical services (24.0% of overall OFDI), finance and insurance (18.3%), and real estate (4.6%). The share of banking-finance in overall OFDI is low for Russia, Ukraine, and Kazakhstan.
As a few examples of OFDI distributions across the different industries of the manufacturing sector, Russia's OFDI was concentrated (2009) first in iron and steel (16.7% of overall OFDI), then in non-ferrous metals (15.8%), and in petroleum product refinery (7.3%), which appears to follow the pattern of the former Soviet industrialization. Polish OFDI (2011) in the manufacturing industry is more scattered across the automobile industry (5.9% of overall OFDI), food and beverages (5.6%), metallurgy (4.5%), rubber and plastic products (2.8%), chemicals (2.5%), electronic and optical products (2.4%), textiles and wood (1.2%), telecom (1.1%), and machinery and equipment (1.0%) (
Looking at the micro (enterprise) level, an unknown number — probably less than 1,000 — of Russian fi
Beyond the number of MNCs per se, their ownership structure and size actually do matter (
A study revealed no statistically significant relationship between ownership concentration and internationalization of firms in Poland; however, the relationship is significant for ownership category and internationalization (
Another variety of MNCs in PTEs are SOEs that invest abroad. While most major Chinese MNCs are SOEs,
Finally, after some years of transition, PTE MNCs indeed emerged, but contrary to some initial euphoric expectations, they remained “multinational dwarfs” when compared to MNCs in emerging markets such as Brazil, India, China, or South Africa. The only clear exception to this statement is the biggest Russian MNCs. A disappointment with this outcome of the transition may explain the switch in focus to SMEs’ internationalization in the CEEC business literature during the 2000s, in particular after the OFDI trend in some PTEs was altered after the 2007 crisis. As
Firms in the early stages of internationalization are usually motivated by market and resource seeking OFDI, whereas efficiency seeking (lower production costs abroad) and strategic asset seeking OFDI are significant motivators in more advanced stages of internationalization from the IDP model perspective.
After the first years of capital flight, the expansion of Russian MNCs abroad often followed the strategy of former Soviet multinationals developed to serve foreign trade purposes. With such a market-seeking OFDI, Russian MNCs are simply relaying previous exports. This strategy first pertains to traditional markets such as the CIS and CEECs; it is also the rationale for Russian OFDI in Western markets where Russian products face tough competition. The Russian MNCs that invest abroad in the mining, oil, and gas industries adopted a resource-seeking approach and attempted to take over their most needed suppliers abroad by means of M&As. Russian OFDI in the CIS is basically resource-seeking and geared towards oil, gas, and mining. The same strategy applies to the fairly recent Russian OFDI in Africa, although in this case it is also driven by the motive of accessing new consumer markets. Russian MNCs have not yet adopted an efficiency- seeking strategy, although they could have envisaged it in the CIS and developing countries with lower production costs than in Russia.
Since other PTEs have small domestic markets compared to Russia, their MNCs definitely adopted a market-seeking strategy. The motives of Polish FDI abroad are rather classic, predominantly market and resource seeking, or a mixture of the two (
Reducing production costs was also a factor in Polish MNCs investment in CIS countries (such as Śnieżka) with lower energy and material prices, as well as in emerging Asian countries (Ferro) with lower labor costs. Investment in EU countries was rarely driven by the labor cost factor since most EU member states have higher salaries and wages than Poland does. However, some Polish MNCs, such as Erbud, Bioton, or Relpol, developed foreign production to use the host country's labor force, and others such as KGHM did so for the host's natural resources (
Hungarian MNCs basically adopted a market-seeking strategy, but also an efficiency-seeking one in Bulgaria, Romania, and the CIS countries, and some adopted a resource-seeking one in ex-Soviet regions (
Using data for 90 manufacturing SMEs from 6 CEECs,
Most Slovene OFDI is clearly market-seeking: access to new markets, proximity to customers, and competitors resulted in valuable market, marketing, and managerial experience. A small domestic market with increasing inward FDI and competition are the reasons why OFDI is predominantly market-seeking. The latter appears to be complementary to exports since it substantially affects increases in market shares, exports, and production. Medium-high and medium- low technology SMEs especially rely mostly on direct exports, which upgrade with the establishment of a network of representatives or subsidiaries further into the internationalization process (
Czech firms, contrary to their Polish counterparts, cannot take advantage of their national diasporas in distant markets; this complicates their expansion to more distant markets. In Slovakia, food industry SMEs have a market-seeking strategy with internationalization that relies on expanding exports rather than OFDI (
Empirical evidence shows that Baltic companies’ operations in foreign markets first concentrated on ex-CMEA countries, especially the former USSR. Most operations abroad were related to marketing, such as founding representative offices or sales units in a foreign market (
Market-seeking, tariff-jumping, and trade-barrier jumping are major drivers of Ukrainian OFDI (
Though some OFDI proceeds through greenfi investment, the expansion of many PTE-based MNCs abroad resorted to cross-border M&As. Russian MNCs conducted an asset-seeking strategy based on overseas M&As to acquire Western technology and R&D intensive units. Trans-border M&As enable them to consolidate their global competitiveness in creating or reaching the advantages of a monopoly or dominant oligopoly position in some foreign markets. The main target for M&As by Russian MNCs is to take over European and North American fi to enter industries linked to natural resources in the U.S., Canada, Italy, Switzerland, and South Africa. Big trans-border M&As are less frequent in Russia's close abroad, whose fi are smaller and less attractive in terms of high-tech assets. The proportion of M&As in Europe peaked in 1997–2000, whereas those in the CIS climaxed in 2001-2004. The fi asset acquisitions appeared in developing countries in 2005. The financial crisis lowered M&As by Russian MNCs. The overall number of trans-border M&A deals was 114 in 2007 and 119 in 2008; it fell to 102 in 2009 and 70 in 2010 (
Firms from other PTEs also acquired foreign companies through cross-border M&As. Among Polish firms’ OFDI, greenfield investment is dominant compared to M&As. The overall value of greenfield projects since 2004 amounted to $13,730 billion, while M&A purchases were valued at $10,176 billion (
Many of these transactions were spectacular, such as the acquisition by Asseco, Maspex, KGHM, or PKN Orlen. Most of these M&As were market-seeking and aimed to develop a foreign sales and distribution network through OFDI; such was the case for LPP, Wojas, and Decora. Through M&As, only 23% of Polish MNCs wanted to reduce costs and 15% wanted to acquire know-how (e.g., Asseco). Polish cross-border M&As by service MNCs and greenfield FDI by manufacturing MNCs are motivated by the need for efficiency or to gain strategic assets (
In 2010–2011, the most active Polish MNC on the M&A market was Asseco. It took over four foreign entities from the IT business, including the Israeli company Formula Systems for $145 million. The value of Asseco's other transactions abroad were much lower, with each amounting to about $10 million. Due to M&As completed in 2010, Asseco has become not only a leader in the IT market among the CEECs, but is also a leading IT player across all of Europe, ranking 7th among European software vendors in 2011. Trakcja Polska made another large investment to acquire Lithuanian firm (Tiltra) in the infrastructure construction industry for $278 million. However, the value of the top 10 transactions conducted abroad by Polish firms was rather low and reached approximately $609 million (
Beyond Russia and Poland, since the transition, PTE companies have been more the prey of Western acquiring MNCs than acquiring MNCs themselves, probably explaining why their M&As have been less studied so far. Except some Hungarian MNCs such as MOL and OTP Bank, only a few participated in M&A “jumbo deals.” One can mention the Ukrainian firm Palmary, the Azeri Chirag Gunashli merging with INPEX (Japan) for $1.4 billion in 2003, Kazakh Gold Group acquiring $6.3 billion in Polyus Zoloto (Russia) in 2011, KGMH Polska Miedz acquiring Quadra FNX Mining (Canada) for $3.3 billion in 2012, and Energeticky a Prumyslovy (Czech Republic) taking over Slovak Gas for $3.5 billion in 2013.
The idea that domestic economic factors are determinants of OFDI from PTEs is often found in the literature. For instance, low growth potential in the domestic market and increasing regional competition “push” more firms located in Hungary to invest abroad (
Before the econometric testing in the PTE context, the LLL hypothesis suggested by John
Indeed it has often been observed that the presence of foreign firms has a positive spillover effect on labor productivity in domestic firms in the same sector, specifically in very open manufacturing sectors (
Finally,
In line with
Overall, the model writes for each home country i as:(1)where: OFDIi,t stands for the outward foreign direct investment stock from country i in year t; GDP/capitai,t is the gross domestic product per capita in the home country i in year t; gi,t refers to the annual index of GDP growth in the home country i in year t; POPi,t stands for population in the home country i in year t taken as a proxy of its economic size; SCIENTi,t denotes the number of scientists working in the home country i in year t taken as one proxy
Data for outward and inward FDI stock are from UNCTAD and pertain to all years from 2000 to 2015 (and 1997 to 2012 for INFDI), statistics about GDP per capita (in PPP), GDP growth rate, population, the number of scientists, and the share of high-tech exports in overall exports, are collected from the World Bank database for the same years. This makes a database with 240 observations (16 years × 15 countries). Missing observations or those with zero values are dropped from the calculation, shrinking the data sample to 204 observations for the econometric estimation.
The lagged variable INFDI is a proxy for testing whether inward FDI in a country had enough linkage, leverage, and learning effects to trigger OFDI by local firms benefitting from these effects one, two, and three years later.
Therefore, the model to be estimated becomes:(2)
Equation
The determinants of outward foreign direct investment from post-communist transition economies.
Table 7 shows that, as expected from Dunning's IDP model, the level of economic development (GDP/capita) is significant at the 1% threshold as an explanatory variable of PTEs’ OFDI. This confirms a result established years ago (
The economy size (population as a proxy) is a second significant explanatory variable of PTEs’ OFDI at the 1% threshold, with either the OLS or panel data regression. It must be highlighted that the coefficient of this variable has a negative sign, which means that the smaller a PTE is, i.e. the smaller its market size, the sooner its firms substitute OFDI for domestic investment in a very small home market. The only exception is Russia, to some extent, but this is not enough to distort the overall statistical result.
GDP growth rate also explains PTEs’ OFDI; though this variable is significant it is not at the 1% threshold. MNEs from fast growing home PTEs are more likely to invest abroad than MNEs from PTEs with a slower growth. However the relationship is not significant when inward FDI is lagged by just one year. This suggests that both GDP growth rate and inward FDI (see below) determine PTEs’ OFDI, but it takes more than one year for this triangular relationship to be plainly at work.
Technological variables also explain OFDI from PTEs, but they do not exactly fit with expectations and econometric results obtained for the 1990s (
The share of high-tech products in overall exports appears to be a significant variable of OFDI with a negative sign. The interpretation goes as follows. There is a technological gap between PTE MNCs and some of their competitors based in the most technologically advanced economies; they suffer from a negative gap
Finally, a strong and significant relationship between OFDI and lagged inward FDI suggests that a process similar to Mathews’ LLL must be at work, more so because the coefficient for this relationship is increasing over time (working back from inward FDI one year to three years before); this confirms
Overall, the results conform to those from previous studies (
During the past decade or so, the number of studies about OFDI from transition economies has increased quickly. Most are country studies focused on OFDI by firms in a single home country. A few studies are comparative, and at best examine OFDI from the four Visegrad countries, the three Baltic States, or a specific sample of CEECs. Since the mid-2010s, the scope of comparison has grown with studies analyzing China and Russia's OFDI and comparing it with other BRICs’ direct investment abroad. A next step is the present study, which attempted to compare OFDI from all transition economies with available data. Consequently, an obvious avenue for further research is a comparison between transition economies and emerging-market economies regarding their OFDI and MNCs.
Outward foreign direct investment stock from transition economies, 1998–2015 ($ billion).
Country | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
Albania | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 0.3 |
Armenia | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 0.3 |
Azerbaijan | 0.1 | 0.5 | 0.5 | 0.6 | 1.0 | 1.3 | 2.6 | 3.7 | 4.4 | 4.7 | 5.2 | 6.1 | 5.8 | 6.3 | 7.5 | 9.0 | 11.2 | 15.4 |
Belarus | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.2 | 0.3 | 0.4 | 0.7 | 0.6 | 0.7 |
Bosnia-Herzegovina | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.2 | 0.3 | 0.2 | 0.2 | 0.3 |
Bulgaria | 0 | 0 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.3 | 0.6 | 1.2 | 1.3 | 1.5 | 1.7 | 1.9 | 2.3 | 2.2 | 3.1 |
Croatia | 0 | 0 | 0.9 | 1.0 | 1.1 | 2.3 | 2.4 | 2.1 | 2.4 | 3.5 | 3.6 | 5.8 | 4.2 | 4.5 | 4.5 | 4.4 | 5.4 | 5.5 |
Czech Republic | 0.8 | 0.9 | 0.7 | 1.1 | 1.5 | 1.7 | 3.1 | 4.2 | 5.1 | 7.0 | 9.9 | 13.9 | 15.5 | 15.5 | 15.2 | 21.4 | 19.0 | 18.5 |
Estonia | 0.2 | 0.3 | 0.3 | 0.4 | 0.7 | 1.0 | 1.4 | 2.0 | 3.6 | 5.9 | 6.7 | 6.6 | 5.8 | 4.7 | 5.8 | 6.7 | 6.3 | 6.1 |
Georgia | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.1 | 0.2 | 0.7 | 1.2 | 1.4 | 1.5 | 1.7 |
Hungary | 1.1 | 1.6 | 2.1 | 4.4 | 4.6 | 3.9 | 4.5 | 6.6 | 12.7 | 18.3 | 14.2 | 17.5 | 20.7 | 23.8 | 34.7 | 39.6 | 39.6 | 38.5 |
Kazakhstan | 0 | 0 | 0 | 0 | 0.5 | 0.3 | n.a. | n.a. | n.a. | 2.1 | 5.8 | 6.8 | 16.2 | 19.9 | 21.0 | 29.1 | 27.2 | 23.9 |
Kyrgyzstan | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.4 | 0 |
Latvia | 0.3 | 0.3 | 0.2 | 0.1 | 0.1 | 0.1 | 0.2 | 0.3 | 0.4 | 0.8 | 1.1 | 1.0 | 0.8 | 0.9 | 1.1 | 1.5 | 1.2 | 1.2 |
Lithuania | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.4 | 0.7 | 1.2 | 1.6 | 2.0 | 2.3 | 2.1 | 2.0 | 2.5 | 2.9 | 2.7 | 2.2 |
Macedonia | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
Moldova | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 |
Montenegro | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0.2 | 0.3 | 0.3 | 0.4 | 0.4 | 0.4 | 0 | 0.4 | 0.4 |
Poland | 1.2 | 1.4 | 1.0 | 1.1 | 1.3 | 1.8 | 2.7 | 4.7 | 10.7 | 19.6 | 21.8 | 26.2 | 36.8 | 50.0 | 57.5 | 55.0 | 65.2 | 27.8 |
Romania | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 | 0.3 | 0.2 | 0.3 | 0.9 | 0.9 | 1.7 | 1.5 | 1.5 | 1.4 | 1.5 | 0.7 | 0.6 |
Serbia | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3.9 | 3.9 | 4.0 | 2.2 | 2.6 | 2.8 | 2.9 |
Slovakia | 0.7 | 0.3 | 0.4 | 0.4 | 0.4 | 0.6 | 0.6 | 0.5 | 1.3 | 1.6 | 1.9 | 2.7 | 2.8 | 4.2 | 4.4 | 4.3 | 3.0 | 2.6 |
Slovenia | 0 | 0 | 0.8 | 1.0 | 1.1 | 1.8 | 2.5 | 3.6 | 3.9 | 6.1 | 8.7 | 8.7 | 7.6 | 7.1 | 7.8 | 7.7 | 6.2 | 5.5 |
Ukraine | 0.1 | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.5 | 0.3 | 6.1 | 7.0 | 7.3 | 8.0 | 8.2 | 9.4 | 9.7 | 9.7 | 9.6 |
Vietnam | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 7.5 | 8.6 |
Russia | 7.4 | 8.6 | 12.4 | 14.7 | 18.0 | 51.8 | 81.9 | 120.4 | 156.8 | 255.2 | 202.8 | 248.9 | 433.7 | 362.1 | 413.2 | 501.2 | 431.9 | 252.0 |
Total | 12.1 | 14.2 | 19.8 | 25.3 | 31.1 | 67.4 | 103.0 | 149.8 | 203.6 | 334.5 | 293.6 | 361.8 | 568.2 | 518.6 | 593.0 | 701.8 | 645.6 | 428.0 |
Total (– Russia) | 4.7 | 5.6 | 7.4 | 10.6 | 13.1 | 15.6 | 21.1 | 29.4 | 46.8 | 79.3 | 90.8 | 112.9 | 134.5 | 156.5 | 179.8 | 200.6 | 213.7 | 176.0 |
Russia / Total (%) | 61.2 | 60.6 | 62.6 | 58.1 | 57.9 | 76.9 | 79.5 | 80.4 | 77.0 | 76.3 | 69.1 | 68.8 | 76.3 | 69.8 | 69.7 | 71.4 | 66.9 | 58.9 |
In the literature on Poland's OFDI, Dunning's IDP model is very much popular — Gorynia et al. (2009, 2010, 2012), Radlo and Sass (2012), Radlo (2012), Buczkowski (2013), Zimny (2013), Ciesielka (2014), as well as in Masca and Vaidean (2010) for Romania, and Ferenčiková and Pappová (2010) for Slovakia.
Afghanistan, Algeria, Angola, Benin, Burma, Congo, Ethiopia, Guinea, Iraq, Madagascar, Mozambique, Nicaragua, South Yemen, Syria, and Tanzania.
Tajikistan, Turkmenistan and Uzbekistan are not mentioned as actual or significant investors abroad in any kind of published document whereas the three Baltic States are counted with PTEs that are EU members as well as Slovenia (the sixth former Yugoslav republic).
Round-tripping OFDI refers to a circular investment such as, for instance, Russian enterprises and citizens investing in offshore companies, in particular in Cyprus and the Virgin Islands, to reinvest the corresponding capital later on in Russia.
OFDI stock from the PTEs is also quite smaller than OFDI stock from the BRICs, or from a sample of 13 New Wave Emerging Countries (Andreff, 2016a).
Dura and Driga (2012) discussed Russian giants that invest in the Romanian economy.
In a nutshell, the stages of the IDP model are as follows. In a first stage, a country hosts very little FDI and does not invest at all abroad. In the second stage, it becomes attractive to inward FDI and achieves its very first OFDI, being a net FDI importer. In the third stage, due to its new technological competences and low unit labor cost, the country attracts very significant inward FDI and its MNCs start to invest substantially abroad, though the country remains a net FDI importer. In the fourth stage, a country is developed and invests more OFDI than it receives in inward FDI; its FDI balance becomes positive. In the fifth and last stage, the now post-industrial country roughly reaches a balance between its inward and outward FDI.
Rugraff showed differences between Visegrad countries’ OFDI in this respect. Among the four countries, foreign-controlled multinational subsidiaries dominate the OFDI process in the Czech Republic and Hungary, but not in Poland and Slovenia. No general conclusion can be drawn from such a result.
In a sample of Lithuanian companies, 77 % of respondents contend that they develop their activities first in EU countries, then in CIS countries, and finally in Asia and America (Miecinskien and Jurevicien, 2010). However, the OFDI stock data so far does not reflect this.
A more detailed analysis of Russian round tripping OFDI can be found in Andreff (2015).
The exact number of Russian multinational parent companies is not well known; UNCTAD reckoned 1,176 foreign subsidiaries of Russian companies in 2004. This is rather few compared to the 3,429 parent companies of Chinese MNCs that established about 28,000 foreign subsidiaries (Andreff, 2016b).
In China, 160 Chinese SOE-MNCs account for about 84% of overall OFDI. The CEOs of the largest 53 Chinese state-owned MNCs are directly appointed by the Communist Party (Andreff, 2016b).
A more detailed review of cross-border M&As by Polish companies is available in Kaliszuk et al. (2012) and Wancio (2013), by Hungarian companies in Sass and Kalotay (2010), by Slovenian companies in Jaklic (2011), and by Ukrainian companies in Kononov (2010).
Usually, the number of patents registered in the home country is used to assess the technological level in econometric testing (Andreff, 2003, 2016a); but this data is not enough available (every year, every country) in the selected PTE sample.
Moreover, the sample does not include the least developed PTEs such as Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Moldova, and Kosovo since they do not invest significantly abroad.
Such a negative gap was observed in the textile and clothing industry for Ukrainian (and somewhat Polish) firms: “The internationalization of Ukrainian and Polish enterprises is aimed at building a competitive advantage based on foreign suppliers and customers. As regards Ukraine, the pursuit of access to technologies seems to be a clear manifestation of the innovation gap” (Patora-Wysocka, 2011, pp. 10–11.).
See the analysis by Andreff and Balcet (2013).