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 What determines beneficial MNE embeddedness in CEECs? Are MNEs embedded in CEECs with high absorptive capacities (Czech Republic, Hungary) and not embedded.

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Presentation on theme: " What determines beneficial MNE embeddedness in CEECs? Are MNEs embedded in CEECs with high absorptive capacities (Czech Republic, Hungary) and not embedded."— Presentation transcript:

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2  What determines beneficial MNE embeddedness in CEECs? Are MNEs embedded in CEECs with high absorptive capacities (Czech Republic, Hungary) and not embedded in the others (Romania and Bulgaria), which have weak local capacity?

3 1. it allows for possible inter-sectoral comparisons across countries; 2.it is important in the process of EU integration; 3.it is involved in global production networks; 4.it is significant for the CEE economies (in terms of employment and contribution to industrial value added); 5.it is a sector where the role of innovation and knowledge is clearly observed.

4  (Switzerland)  (England-Netherlands)  (Belgium) In Hungary, Romania, Bulgaria and the Czech Republic WHY these companies and countries?

5  The largest and most powerful food MNEs in Europe and in the world with global strategies and networks.  The best representatives of the current and near-future level of industrial integration between Eastern and Western Europe.  All the three companies are present in the four CEECs

6  Hungary and the Czech Republic compared to Bulgaria and Romania in order to grasp the diversity of MNEs’ behavior that exists in the CEECs Similarities  the significant place of the agro-food industry in their economies Differences  in the nature of the embeddedness of MNEs within them;  the first group is part of the first-wave EU enlargement, while the second is part of the second-wave enlargement.

7 Domestic companies Government (Ministry of Education and Research, other ministries with R&D activities, governmental agencies involved in innovation) Parliament Coordinating National Institutions (Academy of Sciences, Acamy of Agriculture and Forestry Sciences) R&D Institutions (National research Institutes, Public and Private Universities) Innovation Related Institutions (Industrial Parks, Business Centers, S&T Parks, Technology and Business Incubators) Financial Institutions FDI MNE headquarters MNEs, domestic suppliers, and the linkages between the different actors of the National Innovation System

8 Government (Ministry of Education and Research, National Development Office; National Patent Office; National Office for RTD, Gov. agencies) Parliament (Education and Science Committee; Economic Committee) Coordinating National Institutions (Hungarian Academy of Sciences, Chambers of Commerce, private sector organizations promoting entrepreneurship) R&D Institutions (National research Institutes, Public and Private Universities) Innovation Related Institutions (Industrial Parks, Business Centers, S&T Parks, Technology and Business Incubators) Financial Institutions (38 Commercial banks; Hungarian Development Bank; Venture Capital Funds) FDI Domestic companies RTD fund RTD Fund RTD Fund MNEs Headquarters Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies MNEs, domestic suppliers, and the linkages between the different actors of the Hungarian Innovation System

9 Government (Ministry of Education, Youth and Sport, other ministries with R&D activities, governmental agencies involved in innovation – CzechInvest) Parliament Coordinating National Institutions (Czech Academy of Science, Technology Center of Academy of Science, Czech Innovation Center) R&D Institutions (National research Institutes, Public and Private Universities) Innovation Related Institutions (Industrial Parks, Business Centers, S&T Parks, Technology and Business Incubators) Financial Institutions (Czech and Moravian Guarantee and Development banks) FDI Domestic companies MNEs Headquarter Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies MNEs, domestic suppliers, and the linkages between the different actors of the Czech Innovation System

10 MNEs, domestic suppliers, and the linkages between the different actors of the Bulgarian Innovation System Government (Ministry of Economy, Ministry of Education, other ministries with R&D activities, governmental agencies involved in innovation, ex. BSMEPA) Parliament Coordinating National Institutions (Bulgarian Academy of Sciences, Bulgarian Chamber of Commerce and Industry, Bulgarian Industrial Association) R&D Institutions (National research Institutes, Public and Private Universities) Innovation Related Institutions (Industrial Parks, Business Centers, S&T Parks, Technology and Business Incubators) Financial Institutions FDI Domestic companies MNEs Headquarter Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies

11 MNEs, domestic suppliers, and the linkages between the different actors of the Romanian Innovation System MNEs Headquarter Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies Legend: Strong links of MNEs Weak links of MNEs Strong Links of Domestic companies Weak links of domestic companies Government (Ministry of Education and Research, other ministries with R&D activities, governmental agencies involved in innovation) Parliament (Commission for Education, Science, Youth and Sport) Coordinating National Institutions (Romanian Academy, Academy of Medical Sciences, Academy of Agriculture and Forestry Sciences) R&D Institutions (National research Institutes, Public and Private Universities) Innovation Related Institutions (Industrial Parks, Business Centers, S&T Parks, Technology and Business Incubators) Financial Institutions FDI Domestic companies

12 CEE subsidiaries Integrated in the global production and supply chain of the mother company; strong centralized management;  Distribute and/or produce many standardized global brands.  Use local suppliers in Hungary and the Czech republic and do not use domestic suppliers in Bulgaria and Romania;  No R&D internationalization in CEE as a whole;  Many governmental initiatives to embed MNEs in the CZ and HU and absence of such in BG and RO.  Hungarian and Czech subsidiaries with larger product portfolios then those in Bulgaria and Romania;  Larger investments in HU and CZ than in BG and RO;

13 CZ and HU subsidiaries beneficially embedded in the local economies due to  better investment climate;  higher absorptive capacities of these economies;  earlier entrance of the MNEs in the beginning of 90s, market leaders, heavy investments;  preservation of the socialist supplier networks;  geographical proximity to Western Europe;  higher purchasing power of the population;  governmental programs encouraging linkage creation between MNEs, local suppliers and R&D institutions.

14 2006, The Czech Republic – the best prepared  Nestlé Cesko closes its Orion factory as an outcome of divestment from cocoa business;  Unilever closed a plant in Zábreh as part of optimization process; production relocated to the plant in Nelahozeves and other European manufacturing centers.  InBev closed two breweries in Belgium, among which the famous Branik brewery 2009 Unilever, Nelahozeves Manufacturing :  - Planned job reductions: 634  - Type of restructuring: Offshoring / Delocalisation  - New Location: EU15  - Employment effect start:  - Employment effect timeline:  The company has decided to move the production to Poland, Romania and Great Britain. Laid-off workers are to be given severance pay amounting between 12 and 14 average monthly wages.

15 2006, Hungary :  Kraft Foods leading manufacturer of confectionary closed completely a plant and moved production facilities to Bratislava and Vienna;  Unilever closed down its best margarine plant in Europe – moved production to Czech republic, Poland and Germany; 200 workers dismissed; Unilever aimed at cutting operation costs to better serve its largest central European markets in Poland and Germany from closer locations.  InBev turns into a highly centralized subsidiary with regionally approved suppliers;  Nestle uses the global suppliers of the mother company.

16  All protection measures removed; free trade regime;  Tougher competition coming from the cheaper imported goods;  Increased prices of water, electricity, labor force;  To increase competitiveness MNEs followed their global optimization plans, which led to concentration of production and plant closures.

17  NO focused policies aimed to embed FDI;  Late massive privatisation, not clear privatization schemes, unstable political environment and constantly changing legislative framework ;  Serious economic crises;  Agricultural sector is highly fragmented and there are not many high quality raw material producers;  Low absorptive capacity of the domestic firms;  Not well developed supplier networks and MNEs source regionally;  No deep linkages with the research institutions for scientic projects;  Government and regional authorities very passive in regard to linkage creation.

18  Nestle – one of the largest investors in BG; uses regional suppliers – there is a European supply chain of Nestle; produces global and local brands, all missing products from the global portfolio are imported, high import duties on Nescafe and cocoa; centralized decision-making;  Unilever – the Bulgarian subsidiary completely dependent on the Romanian one; late entrance in the country in 1999, long process to find appropriate factory, very small product portfolio, mainly imported goods;  InBev – 60% foreign suppliers;integrated in the global production network; concentration of production facilities, closure of two plants; large investments  All the three companies have weak linkages with research institutes, financial institutions, local actors.

19  Unilever – large product portfolio, no partnership with local institutions; inability to source locally – no high quality local suppliers; very low purchasing power of the population, limited number premium brands; heavy investments in modernization of the plant; headquarters of South and Central Europe;  InBev – very high import duties which impede company’s work; 140 mn. Euro investment; mix of foreign and local suppliers, larger share of foreign suppliers, large product portfolio, many difficulties during the economic turmoil, but a very dynamic growth since 2003; until 2004 very autonomous subsidiary; change since 2006;  Nestle – entered very late in 2000, overregulation and restrictions by RO government; ridiculous high import duties; non cooperative local institutions; improvements needed in the judicial system, labor law, etc., looking forward to EU accession to further integrate the subsidiary into the Nestle supply chain;

20  2007, Unilever closed down its margarine plant in Bulgaria; relocated production to Ploest, Romania; 100 employees affected ;  2008, Nestle relocated its ice-cream production from Romania to Bulgaria (Varna); part of the company re-organization process; convenient from logistical and transport point of view; 6 mil. Euro investment; Varna factory to supply Romanian market and other Balkan countries.  2008, Kraft foods announced the intention to close by the end of 2009, the Brasov unit, with 440 employees. Some of the products will be transferred to the Bulgarian subsidiary of the group. The motivation is the limited area for expansion of the unit located in the centre of Brasov town.The 440 redundant workers will receive compensatory payments. In 2007, the turnover at Brasov site was 137 million euro.

21  In 2009, Anheuser-Busch InBev announced the sale of its Central European operations to CVC Capital Partners (“CVC”); this includes breweries in Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Romania, Serbia and Slovakia.  István Szőke, Head of Central and Eastern Europe at CVC, said: “The acquisition marks the first investment in the region for CVC and we are delighted to acquire such a strong business with iconic brands, experienced management and dedicated employees. CVC is committed to developing the group, to be renamed StarBev, into the regional champion and will work with the local management teams and employees to achieve this goal.” (Press release, Brussels, 15 october, ABInbev)

22  After EU enlargement the idea of a food MNEs’ “embeddedness” might be seriously questioned in any country (Western or CEE) from the union.  The economic integration of Central and Western Europe was the major force, which provoked and facilitated the processes of company restructurings.

23  No claim for strong generalizations; Food industry has its peculiarities – oriented mainly to the local market, dependent on local suppliers, difficult transportability of products, heavily dependent on the purchasing power of the population. HOWEVER: Food industry gives important hints for other sectors and global companies.  Large restructurings in all sectors of the European economy. Reorganizations and plant closures observed not only in traditional industries, but also in services - telecommunications, postal services, banking and insurance and public administrations. Just a few examples: automotive industry, Ford, Bosch, Volkswagen; transport sector, Airbus; IT sector –IBM, etc.  EU questions the embeddedness of MNES

24  This does not mean that there is no need for focused national and regional policies to improve countries’ growth and competitiveness;  The challenge is how to grasp the knowledge that foreign firms bring, whether they stay forever or for a while.

25 Thank you very much for your attention !


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