Journal of East-West Business (ISSN: 1066-9868)
Volume: 4 Issue: 1/2
Cover Date: 1998
Publication Date: 1998
Copyright Date: 1998
Simultaneously published as ENTERPRISE RESTRUCTURING AND FOREIGN INVESTMENT INTHE TRANSFORMING EAST: THE IMPACT OF PRIVATIZATION

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CONTENTS (View as Adobe Acrobat PDF)
Introduction
Val Samonis


Enterprise Restructuring and Investment (Foreign and Domestic): Frontiers of Transitions From Plan to Markets on the Eve of the 21st Century
Enterprise Transformation and Foreign Investment in Eastern Europe

Klaus Meyer


  This paper takes a closer look at enterprise transformation in Eastern Europe. It argues that the transformation from a state-owned firm into a capitalist enterprise involves more than reacting to economic incentives. Enterprises need access to capital markets to finance investment and they have to acquire new capabilities to be able to compete successfully in a capitalist economy. Furthermore, the ownership structures that emerged following mass-privatization are not necessarily favorable to radical restructuring. In these three crucial areas-investment capital, capability building and corporate governance-foreign investors can make a key contribution to economic transition.
  Keywords:

Privatization and Company Restructuring in Eastern Europe
Marin Alexandrov Marinov, Svetla Trifonova Marinova, Gerald Watts


  Thc successful transition of Eastern European economies from central planning to market orientation has to include significant company restructuring in addition to privatization. At the micro level it can bring enhanced productive efficiency through changes in organizational structure, operations and financial control and the introduction of marketing as a crucial element and function of the restructured companies. At the macro level, company restructuring creates the necessary conditions for improved allocative efficiency, achieved through the transition from the monopolistic market structure of chronic deficit to a mostly competitive one able, in the longer run, to meet market demand. Restructuring is used here in the broader sense of changes in thc organization's management orientation, operational processes and systems as well as in its formal structure. Restructuring is held to be both extremely complex and critical to the realization of the benefits of privatization at both macro and micro levels. Some broad hypotheses relating to common elements of the restructuring process are introduced: a shift to a flatter, less hierarchical organization structure; the adoption of 'western' financial management and accounting practices and the introduction of budgetary accountability; the evolution of the marketing function and the rationalization of product ranges in the light of market needs.
  Keywords:

Investment in Transition Economies: Factors of Change and Implications for Performance
Vladimir Popov


  All centrally planned economies suffered from over-investment. Due to low capital productivity, reasonable growth rates in output could be maintained only with high investment/GDP ratios. Nevertheless, the sharp reduction in investment during transformational recession and its slow growth during subsequent recovery are viewed as negative phenomena, since transition economies offer numerous opportunities to increase output with relatively small targeted investment. This paper seeks to develop and test two major hypotheses. The first one explains the behavior of aggregate investment during transition: we find that changes in external financing (current account balance), in the government budget deficit and in the institutional capacity of the state (as measured by the share of government revenues in GDP) explain up to 75% of the variations in investment/GDP ratios during transition, while the progress in reforms (cumulative liberalisation index) and in privatisation (share of the private sector in GDP) do not matter a great deal. With respect to sources of investment financing, there is some evidence that better investment performance is supported by budgetary funds, by credits to the private sector and by the strength of the stock market, whereas foreign aid is a substitute rather than a complement (i.e., it is negatively related to investment) and the inflow of foreign direct investment is not important. The second hypothesis deals with the impact of investment on economic performance as measured by changes in GDP during transition: we find that differences in performance are, in great part, associated not with investment patterns, but with varying marginal capital productivity. The latter in turn is determined mainly by differing magnitudes of restructuring required in various countries, i.e., by the distortions in industrial structure and trade patterns inherited From central planning, and by the institutional capacity of the state (as measured by the share of shadow economy and government revenues in GDP). The degree of liberalisation in this case appears to be a relatively important determinant of capital productivity, while the rates of inflation are not.
  Keywords:

Foreign Direct Investment in Transition Economies: Interrelationships Among Privatization, Enterprise Restructuring, Trade Performance
The Achievement of Privatization Objectives in Central and Eastern Europe

Tony Cox, Graham Hooley, József Berács, Krzysztof Fonfara, Boris Snoj


  Privatization is an essential part of the transition process in Central and Eastern Europe. In this process the major stakeholders have a variety of different objectives. The conventional Western literature views of the objectives of governments, investors, and privatized companies are identified. The research then studies the importance of these in Central and Eastern Europe and the degree to which they have been achieved in Hungary, Poland, and Slovenia for former state-owned enterprises (SOEs) which are now fully or partly private and for organic private firms. The paper concludes that the major objectives are more likely to be achieved by fully privatized former SOEs.
  Keywords:

Country of Origin Effects on Industrial Products Coming from Eastern Europe
Erik B. Nes, Pervez N. Ghauri


  Industrial buyers and consumers may have opinions about the general quality of products and companies from different nations and use such opinions as informational cues in their buying processes. This article presents a comparative study of the industrial profile of a "New European nation" and Western European nations. Tentative implications of the differences in industrial profile are suggested for international marketing strategy.
  Keywords:

On Determinants of Japan's Foreign Direct Investment in Eastern Europe: The Case of Poland
Ken Morita


  The paper takes issue with some untested but often repeated assertions that Japanese FDI positions in Eastern Europe are weak. Japan's economic relations with Eastern Europe, including FDI, should be understood in the context of Japan's global economic relations. Therefore, it might not be appropriate to approach the question armed with absolute FDI numbers only. So, the author proceeds to empirically test some ot these assertions by calculating directional trade ratios and directional FDI ratios. As a result of his approach, he claims that Japan's FDI position in Poland is not significantly weaker compared to its trade position or to other advanced countries' positions. The paper also suggests that, although Japan's FDI in Poland has been undoubtedly stagnant, the larger problem is that thc Polish FDI environment is still problematic due mainly to repayment risks and rather low levels of real per capita income.
  Keywords:

Kolektor: A Case Study of Foreign Direct Investment in Slovenia
Marjan Svetlicic, Matija Rojec


  The paper demonstrates the implications of the postcommunist transition on the Slovene company Kolektor which had had a joint venture agreement with a German investor for 22 years before the transition process in Slovenia started. The Kolektor case also demonstrates that catching up is possible if it is a productive combination of the company's own efforts and important assistance by foreign investors as part of an organic, gradual but ambitious development strategy. Perhaps the most important message of the Kolektor case is the crucial importance of management of the company, its stability, commitment, competence and last but not least vision and the risk-taking attitude. The case of Kolektor also shows that companies in the former socialist countries which were not located in the major (capital) city have proved to be in many cases much better suited to face world market competition. Those in the center frequently built their "competitive advantages" on good links with politicians and bankers, in such a way acquiring different forms of benefits and protection, neglecting strengthening of their own innovation, investment and production capabilities. Once again, the case of Kolektor underscores the complexities of the actual micro-transition processes and their impact on FDI.
  Keywords:

Analyses and Views From the Trenches
Determinants, Structure, and Impact of Privatization: Poland in Comparative Perspective

Leszek Balcerowicz


  The focus of the paper are determinants of the rate and structure of privatization processes and thus the impact of privatization as exemplified by the case of Poland seen from the comparative perspective. The determinants can be grouped into the main factors, that is those not affecting the privatization processes directly (e.g., macroeconomics issues) and privatization-specific factors (directly affecting the process). The paper tries to dispel some popular and persistent myths concerning the impact of privatization and other transition processes.
  Keywords:

Macrotransition, Microtransition: A View from a Trend-Setting Country
Val Samonis, Aleksandras Abisala


  The impact of the macroeconomic policy on the micro variables comes with a significant delay and is not well understood at the microlevels (enterprises, citizens, etc.) in postcommunist societies. Because of the time lag in obtaining or perceiving measurable results at thc microlevels, sound macropolicies are at risk of being derailed hy populist propaganda by forces stemming from the old system.
  Keywords:

Enterprise Restructuring and Turnaround Management in Russia: Roles for Western Capital
Val Samonis, Vasily V. Vitryanski, Vladimir Postyshev


  After the wave of privatization has swept Russia, the crucial stage of enterprise restructuring begins. According to various circulating estimates, ahout half of large enterprises need to be reorganized if they are to prosper in the new market economy of Russia. Some of other enterprises need to be closed immediately so that they cease to drag the Russian economy down by subtracting value from it. On the other hand, there is evidence of fraudulent bankruptcies orchestrated by Russia's powerful managers and designed to strip existing enterprises of valuable assets which are then transferred to private pockets illegally or semi-legally. The Russian Government is trying to cope with these challenges under very difficult conditions of inadequate human and financial resources, unclear market structures (e.g., financial-industrial groups), underdeveloped markets for assets, and social-political pressures to maintain status quo which is not sustainable in the longer term. Legislative and other actions need to be taken to adopt decentralized, imaginative solutions which can bring results under Russia's particular circumstanccs. No ready-made solutions exist but the Russian Government sees quite a lot of good analogies in the new German Lacnder. Other potential solutions, like debt-for-equity swaps, vulture funds, etc., stem from the Anglo-Saxon or American traditions. All these solutions should be considered carefully. Some of them should be used domestically; others should give Western capital opportunities to assist in the enterprise restructuring and other transition processes in Russia.
  Keywords:

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