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Boudewijn Dezutter: Consultant at OMS Business to Business Communications NV, Brussels, Belgium
Eastern Europe
Why Western companies invest in Eastern Europe
Many different enumerations have been given for the reasons for investing in Eastern Europe (Artisien et al., 1993; El Kahal, 1994; Ivanov, 1995). However, it is interesting to look at the results of a recent survey among managers of firms with foreign participation undertaken by the Polish Agency for Foreign Investment (PAIZ) in 1995, which served to analyse the factors that the investors take into account when considering investing in Eastern Europe (PAIZ, 1995). This survey indicated the low labour cost as the most important factor. The figure was highest for investors from European countries where labour costs are several times higher than in Eastern European countries. Combined with the proximity to European markets, it seemed that another main advantage of investing in Eastern Europe was considered to be the large local market as opposed to the possibilities of cutting costs for export to other countries.
Problems and pitfalls of investing in the Eastern European market
In business practice, the foreign investments have proved to be lower than anticipated and the distribution of flows within the region has been uneven. Therefore, it can be concluded that there must be problems with these investments. A main underlying problem discussed by many writers in this area is the fact that these countries used to have planned economies (Artisien et al., 1993; Artisien-Maksimenko and Adjubei, 1996; El Kahal, 1994; Ivanov 1995). The following quote of S. De Bendern of Ernst & Young was stated in El Kahal (1994) and explains a lot:"
The East European countries who are now embracing the politics of the free market have been used to central planning for the past four to five decades. In a planned economy, state enterprises are used to receiving allotments of raw materials and funds, and have to produce enough goods to fulfil the plan that is imposed by a state planning committee. If they fall short of the plan, state subsidies are increased to help boost the output. If they surpass the plan, the surplus is reabsorbed by the state. Concepts such as profit, loss, cost accounting and marketing played no role in the functioning of...