New Europe College Regional Program Yearbook 2001-2002

DENIZ EYLEM YÖRÜK
3.2 Foreign Direct Investment and Its Expected Impacts
After transition, the targets and associated strategies of domestic firms
have been shifting, into line with western values and perceptions, and
these shifts have of course radically altered business practices. The food
processing industry has experienced restructuring through privatization
of the former state-owned enterprises and entry of MNEs to the region,
although this has occurred relatively late in Romania compared to other
CEECs. This restructuring is strongly influenced by the pace of changes,
though slow, in the agricultural system, and the rebuilding of networks
with the drive coming from the food processing companies, instead of
the state.
Especially at the beginning of the transition, the food-processing
industry was performing badly in almost all CEECs. Yet, it has attracted
significant amounts of FDI (Duponcel, 1998), which was focusing on
market-seeking strategies in the internationalization policies of MNEs.
The latter have mainly been attracted by domestic market share rather
than export opportunities. This has helped to decrease competition in
Western Europe by allowing for production and export within the CEEC
region, if appropriate. However, investors have preferred factories with
more advanced technology, a quasi-monopolistic position, relatively good
organizational features, and favorable location (Hanzl, 2000). It is also
argued that FDI has positive effects on the restructuring of the domestic
enterprises and the reorganization of the structure of the industry in the
transition economies, through stimulating the competitive environment
and bringing new technology and new managerial know-how. The
domestic companies are compelled to adopt cost-saving and qualityimproving
production processes as well as to learn and apply marketing
and advertising. This has paved the way for increasing efforts by domestic
companies to catch-up with the European standards of food quality and
safety all along the food chain and to obtain ISO certificates, not only to
retain their market shares against the foreign competitors but also to be
able to penetrate to foreign markets, particularly in Western Europe.
Attracting FDI is also related to government policies. For instance, the
stock of FDI in the Czech Republic, where priority was given to
privatization to domestic owners via voucher scheme in lieu of attracting
FDI, was less than half that of Romania at the end of 1996 (Duponcel,
1998).
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